ECONOMICS

Detailed explanation-1: -2) For mutually exclusive projects, the project with the higher IRR is the correct selection. 3) When using a profitability index to select projects, a high value is preferred over a low value. 4) If a project has multiple IRRs, the lowest one is incorrect.

Detailed explanation-2: -The simplest way of choosing among mutually exclusive projects with equal lives is to compute the net present values of the projects and choose the one with the highest net present value. This decision rule is consistent with firm value maximization.

Detailed explanation-3: -Projects with a positive NPV are expected to increase the value of the firm. Thus, the NPV decision rule specifies that all independent projects with a positive NPV should be accepted. When choosing among mutually exclusive projects, the project with the largest (positive) NPV should be selected.

Detailed explanation-4: -In such cases, while choosing among mutually exclusive projects, one should always select the project giving the largest positive net present value using the appropriate cost of capital or predetermined cut-off rate.

Detailed explanation-5: -When choosing between mutually exclusive projects, what is the best method to use? The highest NPV is always the best option. A project has a net present value of zero.