You have a choice between two projects, Project1 pays $12,000 back at the end of 1 period on an investment of $10,000. Project 2 pays back $6,500 at the end of 1 period on an investment of $5,000. Which project should be chosen and what is the problem that you must be concerned with in this choice?
A) Project 1; discount rate.
B) Project 2; discount rate.
C) Project 1; project scales.
D) Project 2; project scales.
E) Project 1, cash flow timings.

Question

Quizplus · Accepted Answer

Project 1 has a return of $2,000 on a $10,000 investment (20% return), and Project 2 has a return of $1,500 on a $5,000 investment (30% return). The issue is with project scales, as comparing absolute returns ignores the scale of the investment.

You Have a Choice Between Two Projects, Project1 Pays $12,000