medium · Principles of Finance capital-budgeting
In a case of 'mutually exclusive projects' with different timing (e.g., one front-loaded, one back-loaded), the IRR might favor:
- The project that requires the least amount of debt financing.
- The project with the highest terminal value at the end of twenty years.
- Neither, as IRR is identical for any two projects with the same total nominal cash flow.
- The project with earlier cash flows, especially if the cost of capital is low.
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