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If you have multiple net present value projects that are also mutually exclusive... 1-then you should...

If you have multiple net present value projects that are also mutually exclusive...

1-then you should choose the project with the highest NPV.

2-then you should choose the project with the lowest opportunity cost.

3-then you should choose the project with the quickest payback period.

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Answer #1

Since projects are mutually exclusive;Hence the project having the highest NPV should be chosen as it would provide the highest value addition to the firm.

NPV=Present value of inflows-Present value of outflows

where Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period).

Hence higher the NPV;better is the project.

Hence the correct option is:

1-then you should choose the project with the highest NPV.

It is to be noted that payback period method does not consider time value of money while in selection of mutually exclusive projects;NPV method is best suited since it considers time value of money;life of the project etc.

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