If mutually exclusive projects with normal cash flows are being analyzed, the net present Value (NPV) and internal rate of return (IRR) methods sometimes agree. Projects sometimes utually exclusive projects. Their cash flows and NPV profiles are shown as follows. always never Yed 0 Project z -$1,500 $900 $600 -$1,500 $200 $400 1 2 3 $600 $300 4 $1,000 $200 NPV IDollars 800 600 Project Y 400 Project 2 200 0 BUU 600 Project Y LOD Project 2 200 0 -200 0 2 4 6 8 10 12 14 16 18 20 COST OF CAPITAL (Percent if the weighted average cost of capital (WACC) for each project is 6%, do the NPV and IRR methods agree or conflict The methods conflict The methods agree. When there is a conflict, a key to resolving this it is the assumed reinvestment rate. The NPV calculation implicitly assumes that intermediate cash flows are reinvested at the and the IRR calculation assumes that the rate at which cash flows can be reinvested is the As a result, when evaluating mutually exclusive projects, the NPV method is usually the better decision criterion Grade It Now Save & Continue