You attend an investment committee where your boss, the Chief Executive Office (CEO), and other executives meet to discuss capital budgeting

Comparing two mutually exclusive projects ,NPV and IRR may provide conflicting results.Project A has higher NPV whereas Project B has higher internal rate of return.This situation may occur beacuse of different cash flow patterns in two projects.In case of mutually exclusive projects firm needs to decide in one of the two projects to invest in.

Option B is correct ,NPV should be deciding factor and project A should be chosen.Project with higher NPV should be chosen because there is inherent reinvestment assumption.There is an assumption that the cash flows will be reinvested at same discount rate at which they are discounted.This makes NPV results superior to IRR results.

CEO should choose Project A

Option A is incorrect ,NPV is positive in both projects ,managemet should choose one of the projects having higher NPV

Option C is incorrect because project with higher NPV should be chosen due to inherent reinvestment assumption

Option D is incorrect beacuse in mutually exclusive projects ,we have to chose only one project and we cannot chose both projects.If the projects were independent in that case we can chose both the projects.