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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.

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