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If the weighted average cost of capital ( WACC ) for each project is 1 0 % , do the NPV and IRR methods agree
If the weighted average cost of capital WACC for each project is 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.
If mutually exclusive projects with normal cash flows are being analyzed, the net present value NPV and internal rate of return IRR methods always agree.
Projects and are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows.
tableYearProject Project
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