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Graphically Solution of IRR Vs NPV by Wikipedia

If you have worked in area of capital budgeting, then you would surely face the problem of IRR Vs NPV.

Problem of IRR Vs NPV

If we take to two projects and if one project’s IRR is low and NPV is high and other project’s IRR is high but NPV is low, then which project will you accept?

Solution is given by Wikipedia

Wikipedia’s writer made a wonderful graph which shows that it may possible that IRR is low and NPV is high of any project like project A,  because by accepting Project A,  you can increase in shareholders' wealth which is not possible in IRR. Same solution will be for P.I. Vs NPV problem.



However, NPV remains the "more accurate" reflection of value to the business. IRR, as a measure of investment efficiency may give better insights in capital constrained situations. However, when comparing mutually exclusive projects, NPV is the appropriate measure.

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Accounting Education: Graphically Solution of IRR Vs NPV by Wikipedia
Graphically Solution of IRR Vs NPV by Wikipedia
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Accounting Education
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