Page 66 - FM Integrated WorkBook STUDENT 2018-19

Chapter 3

5.3 NPV vs IRR

NPV and IRR are both superior DCF techniques for evaluating investment
opportunities but they can give a different decision about a project.

IRR A IRR B

NPV A

NPV B

Firm cost Project B

of capital

Project A

 If the two measures conflict, NPV should be used as it gives the absolute
increase in shareholder wealth at the business’s current funding level, as
represented by the cost of capital.

56