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Back to Assignment Attempts 2.5 Keep the Highest 25/4 7. Understanding the NPV profile M If an independent project with conventional or normal, cash flows is being analyzed, the net present valse (NPV) and internal rate of return (IRR) methods agree Projects Y and Z are mutually exclusive projects. Their cash flows and NPV proles are shown as follows Year Project V - $1,500 $200 $400 $600 Project -$1,500 $900 1 2 S600 3 $300 4 $1,000 $200 Project 200 -200 0 2 6 10 12 14 16 18 20 COST OF CAPITAL Percent of the weighted average cost of capital (WACC) for each project 29, 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 NPV calculation implicitly assumes that intermediate cash flows are revented at the and the TRR calculation assumes that the rate at which shows can bevested in the As a result, when evaluating mutually exclusive projects, the I way the butter dechtonterian Grade R NOW Save & Continue Continue without saving