How come in part (b) of the question, we work out the NPV per $ of initial investment for the ranking – This is because for a divisible project we need to apply the Profitbability Index approach.

but in park (c) we just use the total NPV of the three investments, not the NPV per $ of initial investment – This is because for a non-divisible project you can only invest in projects in full and no fractions.

The rankings are different because the two approaches are independent to eachother

How come in part (b) of the question, we work out the NPV per $ of initial investment for the ranking, but in park (c) we just use the total NPV of the three investments, not the NPV per $ of initial investment.

The two different ways give different rankings, therefore different answers.

Harry says

How come in part (b) of the question, we work out the NPV per $ of initial investment for the ranking – This is because for a divisible project we need to apply the Profitbability Index approach.

but in park (c) we just use the total NPV of the three investments, not the NPV per $ of initial investment – This is because for a non-divisible project you can only invest in projects in full and no fractions.

The rankings are different because the two approaches are independent to eachother

Hope that helps

millie4498 says

Hi,

How come in part (b) of the question, we work out the NPV per $ of initial investment for the ranking, but in park (c) we just use the total NPV of the three investments, not the NPV per $ of initial investment.

The two different ways give different rankings, therefore different answers.

Thanks