Glenda’s High Fashion Boutique is looking for a new location for its store. Glenda wants to purchase a small building rather than leasing space in a mall, as she has done in previous years. Her realtor has shown her four possible locations and her accountant has compiled the following information about each of the locations:

Glenda is bewildered by the fact that Location A has the highest IRR but the lowest NPV. She is confused as to which measure to use in order to assess each of the investments.

a. Explain to Glenda why Location A might have a higher IRR but lower NPV than the other two locations.

b. Which is a better indicator of future potential—IRR or NPV? Explain why.

c. What other factors should Glenda consider in order to make a good decision?

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Location A Location B Location C Location D IRR 22% 16% 12% 15% NPV $25,000 $40,000 $30,000 $45,000