Corporate Finance Npv Irr Essay

2198 Words Nov 20th, 2014 9 Pages
Contents







1. Assignment Part A

Prepare the case, with recommendations to be presented to the Board of Directors of ProGen. Assess the viability of the project using the NPV, IRR, and Payback methods.





2. Assignment Part B

“The IRR rule is redundant as an investment criterion because the NPV rule always dominates. Discuss this statement giving examples where possible.



3. Conclusion

“The IRR rule is redundant as an investment criterion because the net present value (NPV) rule always dominates it.”



4. Bibliography

References














Assignment Part A



This report evaluates the viability for marketing and distribution of genetically
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• Assume no inflation

• Assume discount rate of 11%









|Discount rate |11% | | |
|0 |(650) |(650) | |
|1 |(1935) |(2,585) |1 |
|2 |(664) |(3,299) |1 |
|3 |(240) |(3489) |1 |
|4 |1414 |(2075) |1 |
|5 |2,500 |425 |0.8 |










Sensitivity Analysis

A discount rate or over 14.7 % would result in a negative NPV
A reduction in net cash over £115m per annum over 5 years would result in a zero NPV

NPV = - 650 + 1773 + 622 + 217 + 1240 + 2122 = 0

1.11 (1.11)2 (1.11)3 (1.11)4 (1.11)5


IRR = - 650 + 1773 + 622 + 217…

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