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):

Question

Quizplus · Accepted Answer

To compare investment proposals of different amounts, a present value index (PVI) is the most appropriate tool. PVI compares the present value of the cash inflows to the present value of the cash outflows for each investment proposal. The proposal with the highest PVI is the most desirable one. Average rate of return, consumer price index, and price-level index are not appropriate tools for comparing investment proposals of different amounts.

When Several Alternative Investment Proposals of the Same Amount Are