If mutually exclusive projects with normal cash flows are being analyzed, the net present value (NPV) and rate of return (IRR) method: internal agree. sometimes never always Projects Y and Z are mutually erousrveprojects' Their cash flows and NPV profiles are shown as follows. NPV (Dollars Year Project Y Project Z 0 $1,500-$1,500 $200 $400 $600 ProjectY $600 $300 4$1,000 200 Project Z If the weighted average cost of capital (WACC) for each project is 6%, do the NPV and IRR methods agree or conflict? 200 0 2 468 10 12 14 16 18 20 The methods conflict. NPV (Dollars Year Project Y Project Z 0 $1,500 -$1,500 $900 $600 $600 $300 $200 $400 Project Y 4 $1,000 $200 Project Z If the weighted average cost of capital (WACC) for each project is 696, do the NPV and IRR methods agree or conflict? -200 O The methods conflict. O The methods agree. 0 2 4 68 10 12 14 16 18 20 COST OF CAPITAL (Percent) med reinvestment rate. The IRR calculation assumes that intermediate cash A key to resolving this conflict is the assu flows are reinvested at the , and the NPV calculation implicitly assumes e rate at which cash internal rate of return (IRR) modified internal rate of return (MIRR) required rate of return is usually the better decision criterion. A key to resolving this conflict is the assumed reinvestment rate. The IRR calculation assumes that intermediate cash flows are reinvested at the that the rate at which cash flows can be reinvested is the , and the NPV calculation implicitly assumes required rate of return required rate of return modified internal rate of return (MIRR) internal rate of return (IRR) As a result, when evaluating mutually exclusive projects, s a result, when evaluating mutually exclusive projects, the is usually the better decision criterion. NPV method IRR method lash Player WIN 32,0,0,171