When the Amount Invested Differs Substantially Across Projects, NPV Is

question 18

Essay

When the amount invested differs substantially across projects, NPV is of limited value for comparison purposes. You have evaluated three projects of substantially different investment amounts using the net present value (NPV) method. How would you decide which one of the projects to select?

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Definitions:

Stability

The degree to which an economy, market, or financial asset experiences minimal fluctuations and maintains a consistent performance over time.

Growth And Decline

Refers to the phases in the business cycle or individual investments where they experience an increase in value (growth) or a decrease in value (decline).

Return On Assets

Return on Assets (ROA) is a profitability ratio that measures how efficiently a company can manage its assets to produce profit during a period.

Cost Effectiveness

An evaluation criterion that compares the relative costs and outcomes (effects) of two or more courses of action.