PRC-2 · Chapter 6 · Question 14 of 45
If a firm must choose between two mutually exclusive projects, Project A and Project B, both of which possess positive NPVs, but Project A has a substantially higher NPV, the firm should:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Accept Project A and reject Project B.
Explanation
When projects are mutually exclusive, a firm can only undertake one. The rule dictates accepting the project that adds the most absolute value to the firm, which is the one with the highest NPV (Project A).
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