In: Finance
Projects: |
1 |
2 |
3 |
4 |
5 |
6 |
Initial Investment |
$200,000 |
$400,000 |
$250,000 |
$200,000 |
$150,000 |
$400,000 |
IRR |
14% |
12% |
10% |
15% |
12% |
12% |
NPV |
$100,000 |
$20,000 |
$60,000 |
$(5,000) |
$50,000 |
$150,000 |
Answer:1, 3, 5, and 6
We have 10,00,000 to invest.
Using the net present value approach to ranking projects, higher NPV shall accepted first, project with -ve NPV should be rejected. Hence reject project 4.
Here NPV based ranking is as follows
Ranking | Project | initial investment |
1 | 6 | 4,00,000 |
2 | 1 | 2,00,000 |
3 | 3 | 2,50,000 |
4 | 5 | 1,50,000 |
5 | 2 | 4,00,000 |
Even though project 2 has +ve NPV we cant accept it as we had only 10 lakhs to invest.