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Always High NPV we have to select as answer ?

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kshitij_y
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Always High NPV we have to select as answer ?

Postby kshitij_y Sun Dec 15, 2013 6:30 am

Always High NPV we have to select as answer ?
eg. Project A with NPV 45000 with 3 years of completion and
Project B with NPV 85000 with 6 year of completion , Why not project A can be select as it may give 90000 NPV for 6 Years
Please explain the concept with example?
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saket
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Re: Always High NPV we have to select as answer ?

Postby saket Mon Dec 16, 2013 8:36 am

You should not assume that after 3 years project A will return anything... it will return zero else it would have been calculated in NPV calculation.

The time factor is already taken care when we calculate NPV, since we discount the cash flow based on when it is coming to us. In real life we look many factors before we select a project but in exam when such factors are not given and only NPV is given... we need to select based on that only.
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