7. Understanding conflicts between methods 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 always choose the same project. If the crossover rate on the NPV profile is below the horizontal axis, the methods will agree Projects W and X are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows NPV (Dollars Year Project W Project X 800 $1,000 $1,500 $350 $500 $600 $750 $200 $350 $400 $600 600 Project X 400 4 Project W 200 If the weighted average cost of capital (WACC) for each project is 10%, do the NPV and IRR methods agree or conflict? 200 O The methods agree 0 2 4 6 8 10 12 14 16 18 20 COST OF CAPITAL (Percent The methods conflict