Resolving Conflicts in Capital Budgeting for Mutually Exclusive Projects with Time Disparity Differences

Authors

Abstract

When two capital budgeting alternatives are mutually exclusive and have a time disparity of cash flows, a conflict may occur between the NPV and IRR for the two projects. One project may have a higher NPV and the other project may have a higher IRR. The indifference point is the crossover point for the two NPV’s in the NPV profile. If the reinvestment rate for future cash flows is above or below the crossover point, the project with the higher NPV at that point is preferred. This paper shows how to determine the crossover point in the NPV profile.

Recommended Citation

(2013) "Resolving Conflicts in Capital Budgeting for Mutually Exclusive Projects with Time Disparity Differences," Journal of Economics and Finance Education: Vol. 12: Iss. 1, Article 2.
Available at: https://scholarship.rollins.edu/jefe/vol12/iss1/2