To add the greatest value to a firm, mutually exclusive projects that differ in scale or timing should be evaluated using the _____.

Question

Quizplus · Accepted Answer

The net present value (NPV) method is the most appropriate method for comparing mutually exclusive projects that differ in scale or timing as it measures the present value of cash inflows and outflows discounted at the firm's cost of capital. The project with the highest NPV should be chosen as it adds the most value to the firm. The payback period method only considers the time it takes to recover the initial investment and does not take into account the time value of money. The internal rate of return (IRR) and discounted payback period methods also do not consider the time value of money and can provide conflicting results for mutually exclusive projects. The multiple internal rate of return method (MIRR) is useful when there are non-conventional cash flows but may not be appropriate for comparing mutually exclusive projects.

To Add the Greatest Value to a Firm, Mutually Exclusive