Question

In mutually exclusive projects, project that is selected for comparison with others must have

a. Internal rate of return greater than zero

b. Positive net present value

c. Zero net present value

d. Highest net present value

e. Shortest discounted pay back

Answer 1

Option "E" is correct,

As IRR greater 0, doesn't tell if it is less than or greater than the other project.

Positive NPV is just a criterion for the project being selected, it doesn't tell us which is better, as both projects could have positive NPV.

0 NPV is not a selection criterion.

Highest NPV can also mean that all projects have negative NPV.

Shortest discounted pay back is the only fitting response as it tell us the selected project recovers its cost fastest and only takes into account the time value of money.