Project A has NPV of $45 million while project B has NPV of $54.5 million.If the cost of project A is $33 million and the cost of project B is $22 million,which project should be chosen if only one can be chosen?

Question

Quizplus · Accepted Answer

Project B has a higher NPV to cost ratio, which is a better measure of profitability compared to just looking at the standalone NPV. NPV to cost ratio for project A is 1.36 while project B has a higher ratio of 2.47. Therefore, project B should be chosen as it generates more profit per dollar invested.

Project a Has NPV of $45 Million While Project B