Question

U WCI is question. xii. If two projects are mutually exclusive... a. neither should be accepted. b. you will always end up making the same accept/reject decisions whether you use the payback criterion or the discounted payback criterion. c. you will always end up making the same accept/reject decisions whether you use the NPV criterion or the IRR criterion. d. they have the same NPV. e. none of the above.

Answer 1

e) none of these is correct

a) is incorrect as the project with better NPV should be accepted.

b) is incorrect as the payback period does not account for time value of money and discounted payback period account for time value of money. Hence, payback period may be less than useful life and the project may be accepted but in same case discounted payback period may be less than useful life and project may be accepted.

c) is incorrect as i case of mutually exclusive projects, NPV and IRR conflict may arise as in one of the project s NPV may be higher and in other IRR may be higher.

d) is incorrect as the NPV for 2 mutually exclusive projects may be different.