Project Selection Methods
Benefit / Cost Ratio
Ratio between the Present Value of Inflow or the cost invested in a project to the Present Value of Outflow, which is the value of return from the project ( larger is better )
Payback Period
Payback Period is the ratio of the total cash to the average per period cash. It is the time necessary to recover the cost invested in the project.
Net Present Value
Net Present Value is the difference between the project’s current value of cash inflow and the current value of cash outflow.
Return on Investment
10 dollar can be invested in each project. One project gives 11 dollars back and 2nd project gives 12 dollars back. ( Higher is better )
Opportunity Cost
It is the highest value of the project not being selected
Internal Rate of Return
The IRR is used to select the project with the best profitability; when picking a project, the one with the higher IRR is chosen.
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