On a purely theoretical basis, NPV is a better approach when selecting among two mutually exclusive projects.

Question

Quizplus · Accepted Answer

NPV takes the time value of money and the cost of capital into account, providing a more accurate measure of the value of a project. It also considers the absolute value of cash inflows and outflows, making it a more comprehensive approach to project evaluation, especially when compared to other methods such as the payback period or the internal rate of return. Thus, NPV is a superior method for selecting among two mutually exclusive projects.

On a Purely Theoretical Basis, NPV Is a Better Approach