What is the strongest argument favoring NPV over IRR?

The strongest argument favoring net present value (NPV) over internal rate of return (IRR) is that projects can be compared and prioritized according to the value of NPV. NPV provides a direct monetary measure representing the value added to the firm by undertaking a project. By calculating the NPV for different projects, decision-makers can easily evaluate which projects will create the most value.

When prioritizing projects, using NPV allows for clear comparisons regardless of the project size or duration. Investing in projects with the highest NPV is consistent with maximizing shareholder value. This approach helps ensure that resources are allocated to the most financially advantageous options rather than relying on percentage-based metrics like IRR, which can sometimes lead to misleading conclusions, especially when comparing projects with different scales or cash flow patterns.

While the other options touch on relevant aspects of NPV, they do not capture the overarching benefit of prioritizing projects based on their value contribution as effectively as NPV does. For instance, though NPV accounts for the cost of capital and allows for handling varying project sizes, its strength lies primarily in value comparison and prioritization.