0. Critical Conflicts (The Exam's Favorite Question)
NPV and IRR/PI sometimes recommend different projects. In this case, you should always follow NPV's advice. There are two main reasons for the conflict:
Scale Difference: A small project may seem very profitable (in terms of percentage), but a large project will generate more money for the company in terms of quantity.
Reinvestment Rate Assumption: IRR assumes that the earnings are reinvested at the same high rate (which is difficult). NPV, on the other hand, uses a more realistic rate (cost of capital).
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