Question

Which one of the following methods of analysis is most appropriate to use when two investments are mutually exclusive?Internal rate of returnProfitability indexNet present valueModified internal rate of returnAverage accounting return

Answer 1

Hello there!

Answer:

Your answer would be "Net present value"

Explanation:

The reason why "Net present value" would be the correct answer is because this is the method that is specifically used when two investments are mutually exclusive. What "mutually exclusive" means is that something can't occur, or happen, at the same time. What this sentence is saying is that two investments can't happen at the same time. A "Net present value" is the value of the money that is currently present, while being contrasted into future value when it is invested in, specifically in compound interest. What people would use "Net present value" for when two investments are mutually exclusive is to see how much value the different investments will bring, and see which investment they would want to choose first, specifically for profit wise. This is the reason why net present value would be correct.