Hello sir! I have a doubt in question no. 1 subdivision B from June 2014 past paper .....
I don't understand why they have ranked the project E also - divisible projects
(usually we will not rank those projects that have *negative npv* and also we will rank the proposals based on the highest PI)
Can you please help me out in calculating the maximum npv of the several proposals? Thanks in advance.
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JUNE 2014 QUESTION NO 1- B
7y ago#1The question specifically says that Project E must be undertaken, so it is not relevant that it has a negative NPV - it must be undertaken.
The other projects are then ranked according to their profitability index. The PI can be calculated as either the NPV/amount invested, or alternatively the PV of the future flows/amount invested. Either way of measuring it results in the same ranking.
Have you watched my free lectures on capital rationing? The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
Thank you for your clear explanation sir! I have watched your lectures on several topics
7y ago#3You are welcome :-)
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