Discounted cash flow – Capital Rationing – CIMA P2

Comments

1. leevasey says

   December 29, 2022 at 12:02 pm

   Hello,

   In the alternatives section you work out the NPV of all four possible combinations. It appears to me there is a quicker method: calculate the NPV of A, B, C and D individually, then select the projects with the three highest NPVs. Are there circumstances when this would not be appropriate?

   Thanks

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2. Harry says

   June 21, 2018 at 10:25 pm

   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

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3. millie4498 says

   March 19, 2018 at 9:49 pm

   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

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