ABC Company is preparing its strategic plan for the next five years. The company is considering two alternatives to improve its operations and cash flow generation. The first alternative is to replace several smaller production machines over the next two years. Based on the analysis performed, this alternative will generate an IRR of 21.6%. The second alternative is a complete overhaul and replacement of its largest production machines over a period of four years. The analysis of this alternative indicates an IRR of 14.3% will be achieved. Assume the IRR for both alternatives exceed the cost of capital (which is the same for the two alternatives).

Given the scenario above, how would you determine the best alternative for the company? Explain how picking the second alternative might be the best for ABC despite its lower IRR. Provide a situation where selecting either alternative may not be in the best interest for the company.