Just One, Inc., Has Two Mutually Exclusive Investment Projects, P and Q, Shown Below. Suppose the Market Interest Rate Is 10 Percent.

Finally, in order to complete a more accurate comparison between the two projects, we utilized the EANPV as the deciding factor. Under current accepted financial practice, NPV is generally considered the most accurate method of predicting the performance of a potential project. The duration of the projects is different, one lasts four years and one lasts six years. To account for the variation in time frames for the projects and to further refine our selection we calculated the EANPV to compare performance on a yearly basis.

The NPV of this project is negative and the IRR is lower then the Cost of Capital (12%)

Grappling with the potential purchase of Olive Hill Farm, we decided to conduct a financial analysis to determine whether the project should be taken or not. Our financial analysis include scenarios for the best, worse, and most likely outcomes of purchasing the farm. For each scenario a Net Present Worth (NPW) and an Internal Rate of Return (IRR) was calculated and compared. This revealed that there was little gain for the worst case scenario and large gains for the other two scenarios. A sensitivity analysis and a break-even analysis was also conducted. The sensitivity analysis identified the most influential factors on the NPW. In the end, the analysis favored buying Olive Hill Farm because it would be a low risk, high reward investment.

ii-We would like to know how changing the discount rate would affect the NPV of each project. For both projects we have that as the discount rate decreases each project increases in value, and when the discount rate increases both

A project may have more than one IRR, especially when returns of an investment yield negative cash flows following positive cash flows.

The present value of the net incremental cash flows, totaling $5,740K, is added to the present value of the Capital Cost Allowance (CCA) tax shield, provided by the Plant and Equipment of $599K, to arrive at the project’s NPV of $6,339K. (Please refer to Exhibit 4 and 5 for assumptions and detailed NPV calculations.) This high positive NPV means that the project will add a significant amount of value to FMI. In addition, using the incremental cash flows (excluding CCA) generated by the NPV calculation, we calculated the project’s IRR to be 28%. This means that the project will generate a higher rate of return than the company’s cost of capital of 10.05%. This is also a positive indication that the company should undertake the project.

2. Compute the NPV of both projects. Which would you recommend? What if they are not mutually exclusive?

1. The cause to the conflict in the rankings is that while the IRR ranking shows a percentage so that you can see what percentage you are making on certain amount, it does not show the size of the project.

Internal rate of return (IRR) and Payback period “IRR of a project provides useful information regarding the sensitivity of the project’s NPV to errors in the estimate of its cost of capital” (Pierson et al.2011, pp.157).This proposal also shows the project is profitable by using Excel to get the IRR of 18.9%, which is

NPV and IRR: When examining the NPV and the IRR of the Merseyside project, the numbers were very attractive. It had a positive net present value and an IRR above 10 percent. By these numbers, along with others,

Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept-reject decision for each.

It is identified that internal rate of return is relatively a rate at which the value of net present value tends to be zero. The internal rate of return is an appraisal that is mainly associated with a hurdle cost of either capital or discount rate against which it is compared. The hurdle cost mainly corresponds to the advantage cost of capital. In reference to public projects, the hurdle rate represents to be TDR. The major advantage behind making use of this financial appraisal system is the aspect that internal rate of return is mainly dependent on the percentage of rate of return as well as cash flow in order to effectively access a specific investment with the identification of the time value of money over the life of proposed project and it significantly analysis the risks as well as constraints that are associated with the implication of the project (Götze, Northcott, & Schuster, 2007). In the similar way, when discount rate represents to be anonymous, it is not substantial to make use of internal rate of return in determining whether or not to implement the project, even it is a fact that for IRR estimation which is observed as merit. Along with benefits there are number of disadvantages as well that are linked with IRR appraisal technique. It is not highly suitable for the purpose of ranking of different competitive projects. It is relatively possible that internal rate of return of two competing projects are similar but referred to have distinguishing values of NPV due to distinction in the timing of costs as well as advantages (Haka,

| If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years.

The internal rate of return (IRR) and the net present value (NPV) techniques are 2 investment decision tools that satisfy the 2 major criteria for the correct evaluation of capital projects. This criterion is that the techniques should incorporate the use of cash flows and the use of the time value of money. This makes them viable techniques for evaluating investment proposals.

Mutually exclusive projects are another situation for which NPV must extend its approach. In such projects, the chosen project is usually one which results in the greatest positive NPV because this will produce the greatest addition to shareholders’ wealth. In the case of mutually exclusive investments, ranking becomes crucial as only