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

The incremental internal rate of return (IRR) is the difference between the IRR of the larger project and the IRR of the smaller project. If the incremental IRR exceeds the discount rate, then it is more profitable to invest in the larger project. This approach takes into consideration both the size of the project and the time value of money. Therefore, option C is the best choice. The other options do not provide an appropriate method of selecting between two mutually exclusive projects of different sizes.

You Know That Two Mutually Exclusive Projects Are of Different