Describe in words how a project’s NPV profile is constructed. What
is the Y-axis intercept equal to?
Do the NPV and IRR criteria lead to conflicting recommendations
for normal independent projects? For mutually exclusive projects?
What is the “crossover rate,” and how does it interact with the cost
of capital to determine whether or not a conflict exists between NPV
and IRR?
What two characteristics can lead to conflicts between the NPV and
the IRR when evaluating mutually exclusive projects?
What reinvestment rate assumptions are built into the NPV and
IRR? Which assumption is better for firms (a) with good access to
external capital or (b) with no access to external capital?
What characteristic must a project’s cash flow stream have for more
than one IRR to exist?
