If mutually exclusive projects with normal cash flows are being analyzed, the net present value (NPV) and internal rate of return (IRR) methods agree sometimes Projects Wand X are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. Year 0 Project w -$1,000 $200 Project x - $1,500 $350 1 2 $350 $500 $600 3 $400 4 $600 5750 NPV Dollars 300 800 Project X NPV Dollars 800 600 Project X 400 Project w 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 10%, do the NPV and IRR methods agree or conflict? The methods agree The methods conflict. 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 is usually the better decision criterion