Question: Mutually exclusive projects mean exactly that two or more projects that cannot be simultaneously funded; the firm must make a choice of which project to

Mutually exclusive projects mean exactly that two or more projects that cannot be simultaneously funded; the firm must make a choice of which project to fund. The dilemma occurs when mutually exclusive projects each pass the decision rules. If each project is acceptable and would be funded if resources were available, how do we choose among them? The most common decision rule is to select the project with the highest NPV. This process should provide the most profit and be the most supportive of the primary goal: maximizing firm value. Some firms may also compare IRR results if NPV amounts are similar.

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