Question
ABC Ltd. is evaluating two projects. Project A requires ₹50 lakhs investment and offers IRR of 14%. Project B requires ₹40 lakhs and gives IRR of 12%. The cost of capital is 10%, but Project A has longer payback and higher risk. Which approach should guide the decision?
Solution
Between mutually exclusive projects, NPV is more reliable than IRR, as IRR can be misleading when project sizes differ or cash flows vary over time.
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