How does the NPV method differ from the IRR method in evaluating Project M, particularly regarding the cost of capital?

The NPV method evaluates Project M by calculating the present value of cash flows using the cost of capital, while the IRR method identifies the discount rate that makes the NPV zero. The NPV method does not face ambiguity with multiple IRRs, as it provides a clear decision based on the calculated NPV. In contrast, the IRR method can yield multiple rates, complicating the evaluation process.

The NPV method assesses Project M by determining the net present value of its cash flows at a specific cost of capital, which in this case is 10%. The NPV is calculated as $0.7736 million, indicating the project should be rejected. On the other hand, the IRR method identifies two IRRs (25% and 400%), leading to uncertainty about which rate to use for decision-making. This discrepancy highlights a key difference: the NPV method provides a straightforward evaluation, while the IRR method can result in conflicting conclusions due to multiple IRRs.