Question

The NPV profile of two mutually exclusive projects can be useful in identifying:

		the interest rates in which an investor would prefer one to the other, the profile would also indicate a possible interest rate in which an investor is indifferent between the alternatives.
		the optimal payback period of the projects given the investors criteria
		the interest rate that the investor should choose to evaluate the projects
		All of the above answers are correct.

Answer 1

Net present value profile in relation to two mutually exclusive projects can be useful in identification of the interest rate in which the investor will be prefering one project to the another and this profile will also indicate the possible interest rate in which the investor is indifferent between various alternative.

it will not be helping us in determination of optimal payback period method because payback period will be considering non discounted cash flows.

It will also not help in selection of the interest rate to evaluate the project.

Correct answer will be option (A)the interest rate in which an investor would prefer one to another project NPV profile would also indicate a possible interest rate in which the investor is indifferent.