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Hi,
What’s the difference between indivisible and divisible?Please, can i also confirm you my understanding as well?
From my understanding:
Indivisible method is to ensures that the project is close to the capital constraint. To make it Divisible, you have to work out the NPV Optimal investment programme that is exactly within the capital constraint.For instance:
Initial cost NPV PI Ranking
Proj 1 40 4 1.1 3
Proj 2 30 5 1.17 1
Proj 3 50 6 1.12 2
Proj 4 60 5 1.08 4So Divisible, after calculating the PI (Profitability Index) and ranking them, i would have to work out how much % that the company will invest in each project from the rankings?
Whereas, for Indivisible, I would just need to add up the initial cost and npv based on the ranking, ensure that it does not go over 100, as below 100 capital strain is fine?
Thank you.
Indivisible means you can only do 100% of projects
Divisible means that you can do proportionsYes, with divisible you calculate the PI index and use all the funds up, on a ranking basis highest first etc
Indivisible you look at the best combinations of using the funds, often not entirely. if you had a 100
* Proj 2 & 3 use 80 npv of 11 *
Proj 3 & 1 use 90 npv of 10
Proj 1 & 4 use 100 npv of 9
proj 2 & 4 use 90 npv of 10
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