How to select Opportunity cost when there are more than two projects given

Submitted by hemant717.patel on Thu, 03/14/2013 - 18:34

Hey guys,


What method do we need to follow when ther are more than two projects available in choice for the Opportunity Cost? don't we need to add both proj. B and C and total NPV value would be the answer (NPV = 500K)? 























The company is considering three projects:

Project A has an NPV of $ 500,000

Project B has an NPV of $ 300,000

Project C has an NPV of $ 200,000

What is the opportunity cost if project A is selected? 


 


$ 500,000


 


$ 200,000


 


$ 300,000


 


0



Thanks,

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AP

Thu, 03/14/2013 - 18:42

Whenever there are more than 2 projects under consideration, the opportunity cost will be the hghest of the remaning non selected projects.


In this case, the opportunity cost of selecting Project A is $ 300,000 (since this is highest among project B & C).


 


Regards,


Arun.

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crushPMP

Thu, 03/14/2013 - 18:42

C. $300K ?


The OC of picking Project A is the NPV of the next best NPV project you "let go" which is Project B with 300K

hemant717.patel

Thu, 03/14/2013 - 20:41

yes, the correct answer is C.....thnx everyone..