Projects A and B require an initial investment of $48,000 and $98,000,respectively.The projects are mutually exclusive,and you know the smaller project has a positive NPV.Which one of these methods is probably the best method to use to determine which project to accept?
A)Discounted payback
B)Modified internal rate of return
C)Average accounting rate of return
D)Incremental internal rate of return
E)Internal rate of return

Question

Quizplus · Accepted Answer

Incremental internal rate of return is the best method to use in this scenario because it directly compares the additional costs and benefits of one project over another, which is crucial in making a decision between mutually exclusive projects. It helps in understanding the return on the extra investment required for the larger project compared to the smaller one.

Projects a and B Require an Initial Investment of $48,000