Project Selection
NPV
Highest Wins
Pick the project with the highest NPV
IRR
Exceed Hurdle
Must exceed the organizational hurdle rate
1.0
BCR Minimum
Benefits ÷ Costs must exceed 1.0 to be worth doing
four projects · four metrics · highest NPV wins
Project Comparison Scorecard
| Project | NPV | IRR | Payback | BCR | Pick? |
|---|---|---|---|---|---|
| Alpha | $185k | 14% | 3.2 yr | 1.45 | ✗ |
| Bravo | $240k | 18% | 2.8 yr | 1.65 | ★ winner |
| Charlie | $95k | 11% | 4.5 yr | 1.18 | ✗ |
| Delta | $60k | 8% | 5.1 yr | 0.92 | ✗ below hurdle |
how to read this
- › NPV(Net Present Value) — today's dollar value of all future cash flows minus the investment. Highest wins.
- › IRR(Internal Rate of Return) — the interest rate that makes NPV = 0. Must beat the organization's hurdle rate (~12%) or reject.
- › Payback — years to recover the initial investment. Shorter is nicer but ignores everything past breakeven.
- › BCR (Benefit/Cost Ratio) — above 1.0 means benefits exceed costs. Below 1.0 is a guaranteed loss.
- › Delta fails on two criteria (IRR below hurdle, BCR below 1.0). Reject regardless of strategic appeal.
Exam Traps
Higher NPV wins, period
When comparing projects, always pick the highest Net Present Value. Do not overthink.
Shorter payback is not always better
Payback period ignores the time value of money and everything after breakeven. NPV and IRR are better decision tools.
IRR must beat the hurdle rate
An IRR of 12% means nothing unless you know the hurdle rate. If the hurdle is 15%, this project loses money in the organization's view.
BCR above 1.0 is the minimum bar
A BCR of 0.95 means you spend more than you gain. Reject it regardless of how strategic it sounds.
NPV is king
When in doubt, highest NPV wins. It accounts for time value of money.
Payback alone is weak
Payback period is fast to compute but misses the full picture. Use NPV for big decisions.
Project A has a $2,000 NPV. Project B has $3,500. Pick B. Higher NPV wins.
Stand A earns 8% per year. Your mom charges you 10% for startup money. A loses money. Reject.
Stand A breaks even in 4 months, B in 6 months. Shorter is nicer but not decisive.
Stand A returns $1.15 per $1 spent. BCR = 1.15. Above 1.0 is worth pursuing.
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