Question: Why is PP not a complete answer to the problem of assessing investment opportunities? Consider the cash flows arising from three competing projects: Time Immediately

Why is PP not a complete answer to the problem of assessing investment opportunities?

Consider the cash flows arising from three competing projects: Time Immediately 1 year's time 2 years' time 3 years' time 4

Time Immediately 1 year's time 2 years' time 3 years' time 4 years' time 5 years' time 5 years' time Cost of machine Operating profit before depreciation Operating profit before depreciation Operating profit before depreciation Operating profit before depreciation Operating profit before depreciation Disposal proceeds Project 1 000 (200) 70 60 70 80 50 40 Project 2 000 (200) 20 20 160 30 20 10 Project 3 000 (200) 70 100 30 200 440 20

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