Net present value:
A)is the best method of analyzing mutually exclusive projects.
B)is less useful than the internal rate of return when comparing different sized projects.
C)is the easiest method of evaluation for non-financial managers to use.
D)is less useful than the profitability index when comparing mutually exclusive projects.
E)is very similar in its methodology to the average accounting return.

Question

Quizplus · Accepted Answer

Net Present Value (NPV) is considered the best method for analyzing mutually exclusive projects because it provides a direct measure of how much value is added to the firm by undertaking the project. It takes into account the time value of money, providing a dollar amount that represents the project's contribution to wealth. Unlike other methods, NPV can accurately compare projects of different sizes and durations by showing the expected increase in the firm's value, making it a preferred choice for evaluating mutually exclusive investments.