Scale free measure of project comparison Profitability Index
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There are two cash flows C1 = {-100,30,30,30,30,30} and C2 = {-150,42,42,42,42,42}. r = 0.05
NPV of C1 = 29.88
NPV of C2 = 31.84
IRR of C1 = 15.2%
IRR of C2 = 12.4%
Which cash-flow do you prefer?Can you thick of scale-free measures of comparison?
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Solution Summary
This problem shows how to select the best project when NPV and IRR give conflicting results. In such a scenario, a new measure is suggested and illustrated how it is used.
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The best criteria to use when selecting a project when we have unlimited cash is NPV. The project with higher NPV should be selected. In this case, if we have unlimited cash, both ...
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