A company is evaluating two competing investments. Investment X has a cost of $1

Question

A company is evaluating two competing investments. Investment X has a cost of $100,000 and a NPV estimated at $35,000. Investment Y has a cost of $220,000 and a NPV estimated at $35,500. Taking everything into account, you would recommend the company undertake which investment and why?

Neither investment is acceptable.

Not sure. Need additional information.

Take investment X, since it has almost the same value creating potential, but costs a fraction of Y. Do something else with the $120,000 saved up front.

Undertake investment Y as it produces more shareholder value.

Neither investment is acceptable.

Not sure. Need additional information.

Take investment X, since it has almost the same value creating potential, but costs a fraction of Y. Do something else with the $120,000 saved up front.

Undertake investment Y as it produces more shareholder value.

Explanation / Answer

correct option is "C" Take investment X, since it has almost the same value creating potential, but costs a fraction of Y. Do something else with the $120,000 saved up front.

Since the difference between NPV of both project is $500 only ,However the cost difference is of (220000-100000) = 120000 ,so taking in to account all other factors ,it is better to take project X as it would result in saving of Initial cost of 120000

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