Thursday, July 25, 2019

The Investment Detective - Finance Case 17 Study

The Investment Detective - Finance 17 - Case Study Example The project’s Payback period, Net Present Value (NPV) and Internal Rate of Return (IRR) are some of the key criteria that can be used. However, NPV provides the best ranking criteria, since IRR is only applicable when there are series of cash flows that indicate results in an initial outlay followed by future inlay (Baker, 2011). A series of cash flows that do not satisfy this requirement, will not give appropriate results with the IRR method. IRR method also gives percentages which do not include the magnitude of cash flows (Baker, 2011). Payback method normally overlooks the time value of money. This is one of its main drawbacks in ranking projects. The drawbacks of Payback period and IRR method make NPV the best method for capital budgeting (Baker, 2011). Project 2 and 6 relate to actual venture capital project in which, bulks of cash inflows are realized at the end of maturity period, but some cash inflows can also occur at the beginning of the period (Baker, 2011). Project 4, 7 and 8 relate to an investment in machinery where positive cash is generated at a certain period of time. After some times, they can be sold so as to generate more cash. Additional cash flows are incurred at the beginning of the period to keep the machinery going (Baker,

No comments:

Post a Comment