WHICH BUSINESS WOULD YOU INVEST IN? Business A: Business B: Market:  Fast growth and subject to rapid change Management:  Young, energetic & inexperienced Investment: £1 million Payback period: 1.5 years NPV: £+350k using a 10% discount factor Market:  Very low growth and highly predictable Management:  Experienced and cautious Payback period: 2.5 years NPV: £+10k using a 20% discount factor

What about the npv? Business A relatively low discount factor of 10% for their NPV calculations rather than Business B who used a higher discount factor (which takes better account of risk). In general, using a low discount factor tends to make NPV calculations look more favourable and can lead to a firm accepting a project when it might be better to reject it.