You are trying to decide between three mutually exclusive investment opportunities.The most appropriate tool for identifying the correct decision is
A) NPV.
B) Profitability index.
C) IRR.
D) Incremental IRR.

Question

Quizplus · Accepted Answer

NPV (Net Present Value) is the most appropriate tool for comparing and analyzing mutually exclusive investment opportunities. It takes into account the time value of money, cash flows, and discount rates, which allows for a more accurate evaluation of the potential return on investment. By comparing the NPV of each option, the investor can determine which opportunity will generate the highest return and make an informed investment decision. Profitability index and IRR are also useful tools for evaluating investment opportunities, but NPV is considered the most reliable and widely used method. Incremental IRR is a more advanced analysis that is useful when deciding between competing projects that have different lives or investment requirements.

You Are Trying to Decide Between Three Mutually Exclusive Investment