When considering two mutually exclusive projects, the firm should always select the project whose internal rate of return is the highest, provided the projects have the same initial cost.This statement is true regardless of whether the projects can be repeated or not.

Question

Quizplus · Accepted Answer

The firm should select the project with the highest net present value (NPV) rather than the highest internal rate of return (IRR) because NPV directly measures the increase in value to the firm, while IRR can be misleading for mutually exclusive projects.

When Considering Two Mutually Exclusive Projects, the Firm Should Always