1.An NPV profile graphs the relationship between a projects’s NPV and the discount rate (see Figure 5.6 in Chapter 5). The NPV profiles of mutually exclusive projects highlight the possible conflict in the decisions made by NPV and IRR and the importance of the crossover point. Construct the NPV profiles for the two projects. Identify the IRR for both projects on the graph and explain the relevance of the crossover point. At the cost of capital,which projects would the NPV and IRR decision rules accept? Tim wants to point out to the board that NPV is an absolute measure of the monetary impact of a project on shareholder value and IRR is a relative value that evaluates the project’s return per dollar invested. What argument can Tim advance to convince the Board that the NPV decisions are always consistent with maximizing shareholder value?
