Final answer:
Selection among mutually exclusive projects should be based on the project with the highest NPV, as it represents the most accurate measure of added wealth and considers the timing and size of cash flows.
Step-by-step explanation:
When projects are mutually exclusive, selection should be made according to the project with the highest NPV (Net Present Value). Mutual exclusivity means that only one project can be chosen; hence, the NPV is the most reliable indicator of a project's profitability.
It represents the expected increase in wealth from the project, discounting future cash flows back to their present value. While the Internal Rate of Return (IRR) can provide insights, it is the NPV that comprehensively accounts for both the size and the timing of cash flows, as well as the project's risk through the discount rate.