Foalsa Ltd have been conducting investment appraisal on two potential new projects the company is looking at undertaking. The management accountant is new to the business and has followed a template calculation for the NPV and IRR that was set up by the previous management accountant for a past project. Having completed the calculations, the management accountant discovered the cost of capital figure the business uses has changed since the template was constructed and is in fact 2% higher. What will be the effect of correcting this error on the NPV and IRR figures? Impact on NPV Impact on IRR A Increase NPV IRR unchanged B Decrease NPV IRR unchanged C NPV unchanged Decrease IRR D Decrease NPV Increase IRR Foalsa Ltd have been conducting investment appraisal on two potential new projectsthe company is looking at undertaking. The management accountant is new to thebusiness and has followed a template calculation for the NPV and IRR that was setup by the previous management accountant for a past project.Having completed the calculations, the management accountant discovered the costof capital figure the business uses has changed since the template was constructedand is in fact 2% higher.What will be the effect of correcting this error on the NPV and IRR figures?Impact on NPVImpact on IRRIncrease NPVIRR unchangedDecrease NPVIRR unchangedNPV unchangedDecrease IRRDecrease NPVIncrease IRRB

Internal rate of return is the real return earned from a project. It shows whether the project has…

Answered: Foalsa Ltd have been conducting…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 25P

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Foalsa Ltd have been conducting investment appraisal on two potential new projects the company is looking at undertaking. The management accountant is new to the business and has followed a template calculation for the NPV and IRR that was set up by the previous management accountant for a past project. Having completed the calculations, the management accountant discovered the cost of capital figure the business uses has changed since the template was constructed and is in fact 2% higher. What will be the effect of correcting this error on the NPV and IRR figures? Impact on NPV Impact on IRR A Increase NPV IRR unchanged B Decrease NPV IRR unchanged C NPV unchanged Decrease IRR D Decrease NPV Increase IRR

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