According to the material, IRR is considered secondary to NPV if results contradict because NPV directly relates to wealth.

• A. It is always preferred over NPV
• B. It is equal to NPV in all cases
• C. It cannot be used with any cash flows
• D. NPV is typically preferred when results contradict IRR because it relates to wealth

Answer: (D)

In capital budgeting, the aim is wealth maximization, so NPV is preferred when the results of the two methods conflict. NPV measures the real dollar value added by a project, bringing all future cash flows back to present value using the cost of capital. This tells you exactly how much wealth would be created (or destroyed) by undertaking the project.

IRR, on the other hand, is a percentage return. It can be misleading when projects differ in size or have unusual cash flows, because a higher IRR doesn’t always mean more value created. IRR also relies on a reinvestment assumption at the IRR itself, which may not be realistic, and with non-standard cash flows a project can even have multiple IRRs.

So, when the two methods disagree, the higher NPV wins because it reflects the actual wealth impact in today’s terms.