- CFA Exams
- CFA Level I Exam
- Study Session 10. Corporate Finance (1)
- Reading 32. Capital Budgeting
- Subject 5. Comparison of the NPV and IRR Methods

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**CFA Practice Question**

Two mutually exclusive projects have conventional cash flows, but one project has a larger NPV while the other project has a higher IRR. Which of the following factors least likely explains this conflict?

A. Risk of the projects as reflected in the required rate of return

B. Size of the projects' initial investments

C. Reinvestment rate assumption

**Explanation:**Conflicting decision rules based on the NPV and IRR methods are related to the reinvestment rate assumption, the timing of the cash flows, or the scale of the projects. Differing required rates of return are not related to conflicting NPV and IRR decisions.

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