When considering two mutually exclusive projects,the firm should always select that project whose IRR 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 decision to select a project based solely on the highest IRR can be misleading, especially when comparing mutually exclusive projects. The Net Present Value (NPV) method is generally considered more reliable because it measures the absolute value added to the firm, taking into account the scale of the investment, the cost of capital, and cash flow timing, which IRR does not adequately address.

When Considering Two Mutually Exclusive Projects,the Firm Should Always Select