For mutually exclusive projects,the IRR can be used to select the best project:
A) by calculating the modified internal rate of return.
B) by calculating the IRR based on incremental cash flows.
C) by using the discount rate to calculate the IRR.
D) never. IRR cannot be utilized for mutually exclusive projects.

Question

Quizplus · Accepted Answer

When selecting between mutually exclusive projects, the IRR can only be used under the incremental cash flow method. This involves calculating the IRR for each project based on the additional cash flows expected compared to the next best alternative. The project with the highest IRR based on incremental cash flows is the one that should be selected. This method avoids issues that may arise when using IRR on a standalone basis for mutually exclusive projects.

For Mutually Exclusive Projects,the IRR Can Be Used to Select