5. Comparison of the NPV and IRR Methods
e. explain the NPV profile, compare the NPV and IRR methods when evaluating independent and mutually exclusive projects, and describe the problems associated with each of the evaluation methods;
If two projects are mutually exclusive (they compete for internal resources) how are NPV and IRR used to determine which project to proceed with?
For mutually exclusive projects, the NPV and IRR methods lead to same go/no-go decision if the
cost of capital > the crossover rate and different decisions if the
cost of capital < the crossover rate.
What is Multiple IRRs and how does it come to exist?
Multiple IRRs is a situation where a project has two or more IRRs. This problem is caused by the non-conventional cash flows of a project.