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

Projects Y and Z are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows.

Year	Project Y	Project Z
0	$1,500	$1,500
1	$200	$900
2	$400	$600
3	$600	$300
4	$1,000	$200

If the weighted average cost of capital (WACC) for each project is 14%, do the NPV and IRR methods agree or conflict?

The methods conflict.

The methods agree.

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

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