– It is good for those seeking the higher profitability
– Good for selecting the mutually exclusive project e.g. bigger dam vs smaller dam. Furrows sprinkler irrigation.
Relationship between Discount rate and NPV
– Inverse relationship
– NPV is not useful for comparison if initial investment amount are different.
– Let two initial investment 70 lakh and 20 lakh have both NPV 1 crores
In this case the higher investment is selected because it creates multiplier effects in economy by creating wings of employment and social welfare .e.g. in investing poultry enterprises, driver, labor, vet doctors, accountant etc. will get employment opportunities.
Join the conversation