If investment funds are limited, the net present value of one project should not be compared directly to the net present value of another project unless the initial investments in these projects are equal.

Question

Quizplus · Accepted Answer

This is because comparing projects with different initial investments would not give a fair comparison of their profitability, as the project with a higher initial investment may still have a higher net present value but may not be feasible due to limited funds. Instead, projects should be evaluated based on their incremental net present value, which takes into account the difference in initial investments.

If Investment Funds Are Limited, the Net Present Value of One