When managers select correctly from among mutually exclusive projects, they:
A)May give up rate of return for NPV
B)May give up NPV for rate of return
C)Have a tendency to select the largest project
D)Focus on payback method to avoid conflicting signals

Question

Quizplus · Accepted Answer

When managers select from among mutually exclusive projects, they should prioritize those with the highest NPV, even if they have a lower rate of return. This is because the NPV takes into account the time value of money and provides a more accurate picture of the project's profitability over its entire lifespan. Choosing a project with a higher rate of return but a lower NPV may result in missed opportunities to create long-term value for the company.

When Managers Select Correctly from Among Mutually Exclusive Projects, They