Question

XYZ Ltd. is evaluating a project that requires an initial investment of ₹10 crore. The expected cash inflows over the next 5 years are uneven. The company uses a discount rate of 10%. The project has a positive NPV of ₹1.5 crore, but the IRR is only marginally above the cost of capital. Meanwhile, another project offers a higher IRR but lower NPV. What should the company prioritize if it wants to maximize shareholder wealth?

Q: Answer-XYZ Ltd. is evaluating a project that requires an initial investment of ₹10 crore. The expected cash...

NPV directly reflects the value addition to the shareholders wealth. Even if IRR is higher for the other project, the project with higher NPV is preferred in value maximization.

A Select the project with the highest IRR

B Reject both projects

C Select the project with the highest NPV

D Choose the project with lower payback period

E Choose the project with the higher accounting rate of return

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