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9 August, 03:31

A company is considering two similar investment projects. One has an initial cost of $50,000 and the other an initial cost of $450,000. Which evaluation method would be most appropriate?

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  1. 9 August, 03:37
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    Internal rate of return
  2. 9 August, 04:00
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    The best method to evaluate projects where the level of investment differs substantially is Profitability Index. As in this case, the initial investment for the option 1 is $50,000 and the level of investment in the other option is $450,000 which substantially differs from option 1. Here using Profitability Index method (an extension of NPV) is more appropriate here.

    Profitability Index=NPV of the project / Initial Investment

    Decision rule: The projects with higher Profitabilty Index are chosen
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Home » Business » A company is considering two similar investment projects. One has an initial cost of $50,000 and the other an initial cost of $450,000. Which evaluation method would be most appropriate?
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