If projects are mutually exclusive, only one project can be chosen. The internal rate of return (IRR) and the net present value (NPV) methods will not agree. always choose the same project. If the crossover rate on the NPV profile is below the horizontal axis, the methods will sometimes Projects Y and Z are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. never always Year Project Y -$1,500 Project Z -$1,500 0 1 $200 $900 2 $400 $600 3 $600 $300 4 $1,000 $200 NPV (Dollars) 800 600 Project Y 400 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 2%, do the NPV and IRR methods agree or conflict? O The methods conflict. The methods agree. When there is a conflict, a key to resolving this it 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 the As a result, when evaluating mutually exclusive projects, the is usually the better decision criterion. If the weighted average cost of capital (WACC) for each project is 2%, do the NPV and IRR methods agree or conflict? The me required rate of return The me modified internal rate of return (MIRR) internal rate of return (IRR) When there is a d Jumed reinvestment rate. The IRR calculation assumes that intermediate cash flows are , and the NPV calculation implicitly assumes that the rate at which cash flows can reinvested at the be reinvested is the As a result, when evaluating mutually exclusive projects, the is usually the better decision criterion. If the weighted average cost of capital (WACC) for each project is 2%, do the NPV and IRR methods agree or conflict? The methods conflict. The methd required rate of return When there is a cont internal rate of return (IRR) hed reinvestment rate. The IRR calculation assumes that intermediate cash flows are modified internal rate of return (MIRR) , and the NPV calculation implicitly assumes that the rate at which cash flows can reinvested at the be reinvested is the As a result, when evaluating mutually exclusive projects, the is usually the better decision criterion. When there is a conflict, a key to resolving this it is the assumed reinvestment rate. The IRR calculation assumes that intermediate cash flows are reinvested at the IRR method NPV calculation implicitly assumes that the rate at which cash flows can be reinvested is the NPV method As a result, when evaluating mutually exclusive projects, the is usually the better decision criterion