Contravention Between NPV & IRR Due to Timing of Cash Flows: A Case of Capital Budgeting Decision of an Oil Refinery Company

Abstract

Purpose of the study: This write up aims at exploring the causality between the timing of cash flows and contravention of Net Present Value and Internal Rate of Return as regards capital budgeting decision. Background of the study: It is neither too often found that Net Present Value and Internal Rate of Return are leading to neither contradiction nor have the topic been given much thrust. The endeavour is to bring this burning issue in light with the help of a practical case in an oil refinery factory. Methodology: Discounting technique has been used in the formulae to compute Net Present Value and Internal Rate of Return. Results: The study shows possibility of contravening results in case of mutually exclusive projects. Findings: It is found that due to severity of discounting factor, timing of cash flows of projects lead to contradicting results as depicted by Net Present Value and Internal Rate of Return.