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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.The 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.
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Thank you for your clear explanation sir! I have watched your lectures on several topics
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