A firm is considering several mutually exclusive investment opportunities. The best way to choose between them is which of the following?
A)net present value (NPV)
B)payback period
C)profitability index
D)internal rate of return (IRR)

Question

Quizplus · Accepted Answer

NPV is considered the best way to choose between mutually exclusive investment opportunities as it considers the time value of money and accounts for all cash inflows and outflows over the project's life. It provides a dollar figure that shows how much value the investment will add to the firm. The investment with the highest positive NPV should be chosen. Payback period and profitability index do not take into account the time value of money, and IRR can sometimes give conflicting results.

A Firm Is Considering Several Mutually Exclusive Investment Opportunities