You know that two mutually exclusive projects are of different sizes.The smaller project is known to have a positive NPV.Which one of these accurately describes a method of properly determining which one,if either,project should be accepted?
A)Select the project with the higher internal rate of return
B)Accept the project with the shorter payback period
C)Accept the larger project if the incremental IRR exceeds the discount rate
D)Select the project with the higher profitability index
E)Accept the smaller project without any further analysis

Question

Quizplus · Accepted Answer

When faced with mutually exclusive projects that have different sizes, the best method to choose the project is to compare their incremental IRR with the discount rate. If the incremental IRR exceeds the discount rate, it means that the incremental cash flows generated by selecting the larger project are worthy of the additional investment. This is because the incremental IRR measures the additional return generated by choosing one project over the other. Therefore, the correct approach to choosing between mutually exclusive projects that have different sizes is to accept the larger project if the incremental IRR exceeds the discount rate.

You Know That Two Mutually Exclusive Projects Are of Different