You are trying to decide between three mutually exclusive investment opportunities.The most appropriate tool for identifying the correct decision is:
A)net present value (NPV).
B)profitability index.
C)internal rate of return (IRR).
D)incremental internal rate of return (IRR).
E)payback period.

Question

Quizplus · Accepted Answer

NPV is the most appropriate tool for identifying the correct decision because it takes into account the time value of money and gives a more accurate picture of the profitability of an investment. It calculates the present value of all expected cash flows associated with an investment and subtracts the initial investment. The investment with the highest positive NPV is the most profitable and should be chosen. The other tools such as profitability index, IRR, incremental IRR, and payback period only provide limited information and may not accurately reflect the profitability of an investment.

You Are Trying to Decide Between Three Mutually Exclusive Investment