Case Write Up The Investment Detective 1

1373 Words Mar 29th, 2015 6 Pages
Case Write-Up: The Investment Detective

Case Summary
The purpose of this case is to become a capital budgeting analyst and evaluate which set of free cash flows for 8 projects will result in the most effective investment for a firm’s capital. The objective given is to rank the four best that the company should accept. The case is broken down into three separate steps including the given information about estimated cash flows (inflows & outflows), determining the appropriate discount rate, and evaluating the cash flows using the IRR (Internal Rate of Return), MIRR (Modified Internal Rate of Return), NPV (Net Present Value), and other metrics. Each project is chosen solely on the basis of the quantitative analysis. Here are some factors to
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Typically, firms will decide to invest on the project that produces the highest NPV, and for this case if we are to rank by NPV, project #3 is the clear winner. Ranking by profitability index gives the same answer for each project number (it is indirectly related to NPV through the sum of discounted cash flow benefits). However when we look at the other values for project #3, it is lower down the order. This is a result of the only cash flow being in the last (15th) year; due to the time value of money, this lowers the IRR and MIRR substantially, and obviously the payback period is the longest of all the projects. The next prosperous project based off of NPV but also ranked 2nd highest for IRR, MIRR, and PI, is project #4.
At first glance, when considering the two mutually exclusive projects: project #7 and #8, the NPV and PI for project #8 is higher, while the IRR and MIRR are

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