When choosing among mutually exclusive projects, the choice is easy using the NPV rule. As long as at least one project has positive NPV, simply choose the project with the highest NPV.

Question

Quizplus · Accepted Answer

The NPV rule states that if at least one project has a positive NPV, it should be chosen over any other mutually exclusive project with lower NPV. Therefore, if one project has a positive NPV and the others have negative NPV, the choice is easy and the project with the highest positive NPV should be chosen. It is important to note that the choice may not be as straightforward if all projects have negative NPV or if there are constraints such as limited resources that need to be taken into account.

When Choosing Among Mutually Exclusive Projects, the Choice Is Easy