Administration and Executive AssistantTier 535 minadvanced

IRR vs NPV for Ranking Projects

Understand why the project with the highest percentage return is not always the one worth funding.

What you will learn

• Calculate IRR for a series of cash flows
• Explain why IRR ignores the scale of the investment
• Choose between two projects using NPV at the actual cost of capital, not IRR alone

Excel skills

IRR, NPV · Investment Appraisal

The task

Two projects, one budget. Our cost of capital is 8%. Work out which project we should actually fund - the one that creates the most value for the business at our real cost of capital, not just the one with the flashier percentage return.

You work in a real spreadsheet in your browser, and your answer is checked against hidden traps the moment you submit.

Try this lesson free