Mutually exclusive projects may be ranked differently when higher or lower discount rates are used.

Question

Quizplus · Accepted Answer

Mutually exclusive projects are those where selecting one project means rejecting the others. The selection of a project primarily depends on the discounted cash flows generated by each project. The level of discount rate used to compute these cash flows can significantly impact a project's profitability. Therefore, when different discount rates are applied, the projects may be ranked differently because of varying cash flows.

Mutually Exclusive Projects May Be Ranked Differently When Higher or Lower