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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › IRR NPV
– why it can be possible that IRR of one project is higher and NPV lower compared to some other project.
( I am missing something ,trying to get it )
Here is a tiny example:
Suppose one project needs an investment of $100 and gives an inflow of $150 one year later. The IRR is 50%.
Suppose another project needs an investment of $10,000 and gives an inflow of $11,000 one year later. It has an IRR of 10%.
If the cost of capital is 8%, then which one gives the highest NPV? The second one 🙂
The IRR is simply, by definition, that rate of interest at which the NPV is zero.