CB-ACCTG

Internal Rate of Return is a discount rate in which the net present value of an investment becomes zero. The investment should be accepted if the IRR is not less than the cost of capital. The IRR measures risk, by showing what the discounted rate would have to reach to lose all present value. Futronics Inc. investment would have an IRR of 14.79%. The investment should be accepted since it is greater than the 8% cost of capital. The 14.79% IRR shows the growth expected from the

d. internal rate of return (IRR) the discount rate that forces a project’s NPV to equal zero. The project should be accepted if the IRR is greater than the cost of capital.

Part II – In Part II, you will provide the company with a recommendation for purchasing a new machine. You will base your recommendation on the Net Present Value (NPV) of the capital investment project using the cost of capital (WACC) as your discount rate.

The rate of return on common shareholders’ equity ratio is an indication of a company’s ability to generate income for each dollar invested by its

Capital Investment decision is financial term is also known as Capital Budgeting. Its important goal is to upraise the firms profit by taking on a project at the suitable time.

WACC = cost of debt + cost of equity (weighted by the % of debt/equity in the capital stack)

Investment decisions companies make today will have a direct impact on their ability to reach financial objectives. Most companies are faced with questions such as: which projects should your company invest in, which returns are needed and what risks are the company willing to take to achieve company goals?

* Analyze the factors that influence investment decisions at different stages in an investor’s life cycle, and make a recommendation at which stage the average investor should consider financial investments. Provide support for your recommendation.

The discount rate is a means of calculating a value now of benefits that occur in the future. The discount rate recognizes the time value of money. A four percent real discount rate is used in the calculations. However, the high-speed train project would be economically feasible even under the higher discount rates used by some public agencies and economists. The Internal Rate of Return (IRR) is an evaluation measure that is

r = required rate of return on borrowings (i.e., cost of debt or interest rate)

Secondly, the investor has a high chance of earning more money in the form of profits as a

If the IRR is less than the capital then that project should be rejected because it is not very feasible. If the Internal Rate of Return is larger than the capital required for the project, it should be accepted while if the IRR is just equal to the capital then the project could be considered because it is at the very least earning its cost of capital and should therefore be accepted at the margin.

Such decisions may affect the company’s profitability today but judging from the fact that high risk means low stock price and vice-versa, high return waits in the future.

Therefore, projects with expected return below 7.02% should be rejected if we only recommend a single and solitary hurdle rate. If doing so, we would ignore the difference between business line and probably accept projects with too higher risk relative to its comparable or reject projects with appropriate risk in its business.

This would suggest that the investment decision could possibly go wrong any time from now