No conflict will exist between the NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, if the projects' cost of capital exceeds the rate at which the projects' NPV profiles cross.

Question

Quizplus · Accepted Answer

This is known as the "reinvestment rate assumption" and it ensures that any cash flows generated by the projects are reinvested at a rate that is equal to or greater than the cost of capital. If this assumption holds true, then both the NPV and IRR methods will lead to the same decision regarding which project to choose. However, if the reinvestment rate assumption does not hold true, then conflicts may arise between the two methods.

No Conflict Will Exist Between the NPV and IRR Methods