Which one of the following methods of analysis is most appropriate to use when two investments are mutually exclusive?
A)internal rate of return
B)profitability index
C)net present value
D)modified internal rate of return
E)average accounting return

Question

Quizplus · Accepted Answer

Net Present Value (NPV) is the most appropriate method of analysis when two investments are mutually exclusive. This is because NPV takes into account the time value of money and provides the difference between the present value of cash inflows and the present value of cash outflows. The investment with the higher NPV would be the more profitable one. In the case of mutually exclusive investments, choosing the investment with the higher NPV would result in higher profitability. The other methods of analysis (internal rate of return, profitability index, modified internal rate of return, and average accounting return) would not be appropriate in the case of mutually exclusive investments.

Which One of the Following Methods of Analysis Is Most