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?

Internal rate of return

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