Question
ABC Ltd is considering two possible projects but can only raise enough funds to proceed with one of them. Investment appraisal techniques have been used
ABC Ltd is considering two possible projects but can only raise enough funds to proceed with one of them. Investment appraisal techniques have been used and the following results found:
| Project A | Project B |
Payback period | 3.5 years | 2.8 years |
Rate of return | 16% | 14% |
NPV | +$850000 | +$710000 |
Which of the following is the most logical interpretation of the results?
a. | Project A should be selected because it will yield the highest NPV. |
b. | Project A should be selected as it gives the longest payback period. |
c. | Project B should be selected because the payback period is lower. |
d. | The rate of return is the most meaningful investment appraisal technique and hence Project A should be selected. |
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