Investment
Deployment of capital into projects or assets expected to earn an adequate return — capital expenditures, acquisitions, and net working capital.
Expect a vignette that hands you cash flows and asks you to choose between mutually exclusive projects — the classic tell that NPV and IRR may rank them differently. The conflict traces to the reinvestment-rate assumption: NPV reinvests interim cash flows at the cost of capital, IRR at the (often unrealistic) IRR itself. Anchor on the crossover rate — where the two projects’ NPVs are equal; on either side the NPV ranking flips, with a conflict once the cost of capital sits below it. A second trap is non-conventional cash flows (more than one sign change), which can yield multiple IRRs or none, while NPV stays single-valued.
Keep capital budgeting (the accept/reject choice) distinct from cost of capital — the WACC hurdle is an input, not the output. And separate a project from a merger: an acquisition is one investment project, but exam M&A items turn on synergies and the takeover premium, not standalone NPV. Memory hook: when NPV and IRR fight, “Net” wins — NPV is the decision rule, IRR a return statistic.
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