If mutually exclusive projects with normal cash flows are being analyzed, the net present value (NPV) and internal rate of return (IRR) methodsnever agree.

Projects W and X are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows.

Year Project W Project X

0 $1,000 $1,500

1 $200 $350

2 $350 $500

3 $400 $600

4 $600 $750

If the weighted average cost of capital (WACC) for each project is 6%, do the NPV and IRR methods agree or conflict?

The methods agree.

The methods conflict.

A key to resolving this conflict is the assumed reinvestment rate. The IRR calculation assumes that intermediate cash flows are reinvested at the_________, and the NPV calculation implicitly assumes that the rate at which cash flows can be reinvested is _________ .

As a result, when evaluating mutually exclusive projects, _______ method is usually the better decision criterion.