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    Question

    If two mutually exclusive projects have conflicting

    rankings under NPV and IRR, which method should be preferred?
    A IRR, since it is a percentage return. Correct Answer Incorrect Answer
    B NPV, as it measures absolute wealth maximisation. Correct Answer Incorrect Answer
    C Either can be used. Correct Answer Incorrect Answer
    D Payback should be considered instead. Correct Answer Incorrect Answer
    E Choose based on lower risk. Correct Answer Incorrect Answer

    Solution

    NPV is superior since it measures absolute value creation and assumes reinvestment at cost of capital. IRR may mislead in mutually exclusive projects.

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