... investment decisions for independent (IP) or mutually exclusive (ME) projects that are with (CR) or without (NCR) capital rationing, enabling us to build an investment appraisal window at the end of the Note to help summarise appropriate investment rules that should be employed for each situation. Independent Projects with No Capital Rationing - The basic rule for all projects that have 'normal' cash flows is to invest if NPV>0 or IRR>r*. But the IRR rule does have its drawbacks: No IRR: The IRR rule does not work, however, if there is no IRR. If there was no IRR and the company was using the IRR rule it would not invest, when really no IRR indicates 'the project has a positive NPV at any cost of capital (r*), and a firm should accept it.' (Levy, 1997, pg195) Multiple IRRs: The IRR's 2nd problem is when non-normal cash flows produce multiple IRRs. When a ...

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