Final answer:
Project selection based on Net Present Value (NPV) and Internal Rate of Return (IRR) involves discounting expected cash flows of each project to determine the project's value and return. The indifference point occurs where the NPVs of two projects are equal, indicating a need to consider non-financial factors for decision-making.
Step-by-step explanation:
When choosing a project based on Net Present Value (NPV), the project with the higher NPV is preferred, as it represents the difference between the present value of cash inflows and the present value of cash outflows over a period of time. Conversely, for Internal Rate of Return (IRR), the preferred project is the one with an IRR that exceeds the investor's required rate of return. To calculate the NPV and IRR, expected cash flows from each project are discounted back to their present value using a discount rate, often reflecting the opportunity cost of capital and risk premium.
The indifference point is the discount rate at which the NPVs of two projects are equal. Decision criteria at this point would consider other aspects such as risk, strategic alignment, and resource availability since the financial returns are theoretically the same. Choosing the right project involves analyzing these factors in addition to the financial metrics.