ECONOMICS

Detailed explanation-1: -Mutually exclusive projects: If the NPV of one project is greater than the NPV of the other project, accept the project with the higher NPV. If both projects have a negative NPV, reject both projects.

Detailed explanation-2: -We can continue the NPV analysis without any problem for mutually exclusive projects with different lifetimes. This is because NPV analysis considers a common point in time for all projects, which is the present time.

Detailed explanation-3: -A higher Net Present Value is always considered when making investment decisions because it shows that an investment would be profitable. With a higher NPV, an investment would have a future cash stream that is higher than the amount of money that was invested in the project.

Detailed explanation-4: -Remember that the goal is to choose projects that add value to the company. Because the NPV of a project is the estimate of how much value it will create, choosing the project with the higher NPV is choosing the project that will create the greater value.