Answer:
The best method to evaluate projects where the level of investment differs substantially is Profitability Index. As in this case, the initial investment for the option 1 is $50,000 and the level of investment in the other option is $450,000 which substantially differs from option 1. Here using Profitability Index method (an extension of NPV) is more appropriate here.
Profitability Index=NPV of the project / Initial Investment
Decision rule: The projects with higher Profitabilty Index are chosen
