When several alternative investment proposals of the same amount are being considered, the one with the largest net present value is the most desirable.If the alternative proposals involve different amounts of investment, it is useful to prepare a relative ranking of the proposals by using a(n):

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The best choice to prepare a relative ranking of alternative investment proposals involving different amounts of investment is to use the present value index. This index calculates the ratio of the present value of cash inflows to the present value of cash outflows. The higher the present value index, the more desirable the investment proposal is. This method takes into account the differences in investment sizes and is a more accurate way to compare investment opportunities.

When Several Alternative Investment Proposals of the Same Amount Are