Project 1 Payback period = 2 years 9 months NPV = £2,041

Project 1

Payback period = 2 years 9 months

NPV = £2,041

APR = 22.08%

Project 2

Payback period = 2 years 10 months

NPV = £3,995

APR = 26.19%

Based on the above, which project is best to invest in?

Solutions

Expert Solution

Here, Best method is NPV among APR and Payback period.

In case of NPV, We choose project which have higher NPV. So we choose Project B

In case of APR, we choose higher rate , therefore again we choose Project B.

In case of payback period, we choose lower one. So we choose Project A.

Note:- we only use Payback period when NPV is not giving. Here, NPV is giving we go with NPV decision. Therefore we choose Project B.

We choose Project B.

Junaid answered 1 year ago

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