When two mutually exclusive projects have conflicting rankings under NPV and IRR, which criterion is generally preferred for maximising shareholder wealth?
Correct answer: D. Net present value
- A. Accounting rate of return
- B. Payback period
- C. Average inventory period
- D. Net present value
Explanation
Net present value measures the amount by which a project is expected to increase wealth in present-value terms. IRR can rank mutually exclusive projects differently because it is a percentage measure and may not reflect differences in project scale.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
Practise Business Finance
975 free Business Finance MCQs from Management Sciences, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Management Sciences questions like this
Management Sciences is on 2 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Business Finance questions
A preference share pays an annual dividend of Rs. 12 and currently sells for Rs. 100. Ignoring issue costs, what is the cost of preference shares?
What is the main purpose of a flexible budget?
Under the Modigliani and Miller proposition for capital structure in a perfect market without taxes or bankruptcy costs, the value of a firm is primarily determined by its:
What is the usual effect of a rights issue on existing shareholders who do not exercise or sell their rights?
Which financial statement is primarily used to determine a company's profit or loss over an accounting period?
A firm expects annual demand of 10,000 units, ordering cost of Rs. 500 per order and annual holding cost of Rs. 20 per unit. What is the approximate economic order quantity?