Question 6.ST.7: Discuss the problem of choosing between mutually exclusive p...
Discuss the problem of choosing between mutually exclusive projects with respect to their net present values and internal rates of return.
There is no conflict between the NPV and IRR methods when they are applied to a single investment project with conventional cash flows. In other situations, the two methods may give conflicting results. In all cases where this conflict occurs, the project with the highest NPV should be chosen. This can be proven by examining the incremental cash flows of the projects concerned. The reason for the conflict between the two methods can also be viewed graphically.
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