What if my NPV is positive but the IRR is below the cost of capital?

This is mathematically impossible. If the NPV is positive at a certain discount rate (the cost of capital), the IRR must be higher than that rate.

How close do my two discount rates for the IRR calculation need to be?

They don't need to be extremely close. A 5% or 10% gap (e.g., 10% and 20%) is perfectly acceptable in the exam and will score full marks for method.

Am I ready for the exam if I can calculate NPV and IRR correctly?

Being able to calculate them is a great sign of readiness, but you also need to be able to interpret the results and discuss their limitations, which is often tested in written sections.

How many hours should I spend on just NPV/IRR questions?

Focus on quality, not hours. Aim to complete 3-4 full exam-standard questions correctly. Once you can do that reliably, your time is better spent on other syllabus areas.

What if I get a negative NPV in the exam? Have I failed the question?

Not at all. A negative NPV is a valid outcome and simply means the project is not financially viable. You will score full marks for a correct calculation and a conclusion that recommends rejecting the project.

Why is NPV considered superior to IRR?

NPV is superior mainly because it provides an absolute measure of value ($) that a project will add, and it always gives the correct investment decision when ranking mutually exclusive projects, unlike IRR which can be misleading.

FM Financial Management

NPV and IRR: A Practical Guide for FM

Master Net Present Value (NPV) and Internal Rate of Return (IRR) for your ACCA FM exam. This guide provides a step-by-step worked example, common mistakes, and.