Using NPV :
-- Choice 1 : NPV
-- Choice 2 : NPV=(-100+300/1.12 = $148
so Choice 2 is the better choice.
Using IRR :
-- Choice 1 : 0=(-100+200/(1+r)) => r=100%
-- Choice 2 : 0=(-100+300/(1+r)2 => r=70%
so Choice 1 is the better choice.
Which one is correct ?
We actually must look beyond one single cycle because those two choices do not end at the same time. Assuming proceeds of the first harvest are used to plant additional trees :
So, Choice 1 is better if we look at multiple cycles. However, suppose this is one-time deal and cannot be repeated, NPV is the appropriate criterion.
Above leads us to so called The Harmony Theorem :
If used intelligently, overall, the best criterion is that based on NPV.
When proper account of ownership is made, both criteria lead to the same result.
