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 IRR rule can be misleading for mutually exclusive projects because it does not account for the scale of the projects or the timing of cash flows. The project with the highest IRR may not have the highest NPV, which is the more appropriate measure for value creation.

When Considering Two Mutually Exclusive Projects, the Firm Should Always