Question

when considering two mutally exclusice projects the financial manager should always select the project whose what is highest?

1. NPV

2. IRR

3. both

4. none

Answer 1

1 NPV

In Capital Budgeting NPV and IRR conflict refers to a situation in which the NPV method ranks projects differently from the IRR method. In event of such a difference, a company should accept project(s) with higher NPV.

In Case of Mutually exclusive project , acceptance of one project will totally excludes the other project As iRR is given in return percentage term , and NPv give the absolute dollar value of the project and if the IRR is below thr cost of capital then it not acceptable , hence when there is mutually exclusive project and conflict arise Highest NPV should be selected over the IRR