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BPP Exam Kit question: IRR NPV

GGabbi9y ago
Dear Sir, Could you please help me to understand why below statement are true? When cash flow patterns are conventional, the NPV and IRR method will give the same accept or reject decision (what does "cash flow conventional" mean?) For the following statement, Am I correct if I say that as the IRR is the % of cost of capital when NPV is 0 any project with cost of capital below IRR is acceptable. The project is financially viable under IRR if it exceeds the cost of capital. Thanks in advance Gabriella
John MoffatJohn MoffatTutor9y ago#1
Conventional here simply means an initial outflow followed by several years of inflows. Your later statement is correct.
GGabbi9y ago#2
Dear Sir, Unfortunately I still not understand the meaning of the first statement. Could you please help me with it? Sorry about that Thanks and Regards Gabriella
John MoffatJohn MoffatTutor9y ago#3
Most projects have an initial outflow (the purchase price) followed by a series of cash inflows - that is 'conventional'. However where there could be problems with IRR is if you had an initial outflow, then some inflows, then more outflows. That is not 'conventional'.
GGabbi9y ago#4
Dear Sir, Thanks a million for your help. With your explanation everything makes sense. Best Regards Gabriella
John MoffatJohn MoffatTutor9y ago#5
You are welcome :-)
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