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Hi Sir Moffat,
Instead of calculating the NPV for all combinations of projects in case of non-infinitely divisible projects, can’t we simply rank the individual NPVs for the projects (similar to ranking used in the “infinitely divisible projects” case) and select the top 3 for adding up and getting the best possible combination?
I think it would save time of calculating the NPVs for all possible combinations. Please do let me know your thoughts.No – the only way is to calculate the NPV for all combinations and choose the best.
There is no other way of doing it.Suppose there were 3 investments:
A needs capital of 5,000 and gives an NPV of 2,000
B needs capital of 3,000 and gives an NPV of 1,500
C needs capital of 2,000 and gives an NPV of 1,500.There is only 5,000 available.
Would you choose to invest it all in A because it has the higher NPV? That would be stupid 🙂
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