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Leni [432]
3 years ago
8

A company is considering two similar investment projects. One has an initial cost of $50,000 and the other an initial cost of $4

50,000. Which evaluation method would be most appropriate?
Business
2 answers:
ehidna [41]3 years ago
6 0

Answer:

Internal rate of return

Explanation:

Elan Coil [88]3 years ago
3 0

Answer:

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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