PRC-2 · Chapter 5 · Question 34 of 50
If a firm has two mutually exclusive projects, A and B, which project should mathematically be chosen if both are profitable?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The one with the highest positive Net Present Value (NPV).
Explanation
When projects are mutually exclusive (you can only pick one), the standard decision rule is to pick the one that adds the most absolute value to the firm, which is the one with the higher NPV.
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