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DOUBT 1) could you please check a solution thye have calcaulated PI using a different formula that is {NPV / INITIAL INVESTMENT } the formula in the textbook is CASH INFLOW / INITIAL INVESMENT would it be correct to use the NPV formual in the text book since it is quicker?
DOUBT 2) in the solution is the ranking process wrong since project B PI is 1.6 & project c PI is 1.7 still they have ranked project B as first and project C is exlcuded is that a mistake or is there some explanation for that?
1. We never take the cash flow / initial investment and I cannot believe that it says that in your text book. We either rank on the basis of the NPV/initial investment or on the PV of the cash flows / initial investment (and the answer to this question in the BPP Revision Kit actually states that!!!).
2. The solution is not wrong. The problem is that B and C are mutually exclusive and therefore if they do B they cannot do C, and similarly if they do C then they cannot do B.
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