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Scale free measure of project comparison Profitability Index

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?

Solution Preview

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 ...

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.