NPV Profiles for the "Build New Plant" Versus "Remodel Old Plant" Investment Project Alternatives
Each profile relates project NPV to the discount rate used in the NPV calculation.
net present-value profile
Graph relating NPV to the discount rate crossover discount rate
Interest factor that equates NPV for two or more investments using the NPV criterion and a discount rate k that is less than the crossover discount rate. The "build new plant" alternative is preferred when using the NPV criterion and a discount rate k that is greater than the crossover discount rate. This ranking reversal problem is typical of situations in which investment projects differ greatly in terms of their underlying NPV profiles. Hence, a potentially troubling conflict exists between NPV, PI, and IRR methods.
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