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Chapter 5

Choosing project 5 over project 1
Project Initial investment NPV PI Rank Invest NPV
1 $250,000 $50,000 0.2 4

2 $300,000 $30,000 0.1 5 $160k $16k

3 $650,000 $195,000 0.3 2 $650k $195k
4 $40,000 $20,000 0.5 1 $40k $20k
5 $150,000 $42,000 0.28 3 $150k $42k

$1,000k $273k

Only ($160k/$300k) 53.3% of project 2 can be done, earning 53.3% of its total
NPV.
Choosing project 5 over project 1 for the use of the asset gives a higher overall
NPV of $273

Illustrations and further practice

Now try TYU questions 5, 6 and 7 from Chapter 5

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