Preview

Investment detective

Satisfactory Essays
Open Document
Open Document
788 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Investment detective
The Investment Detective Case
We can use normal investment to calculate the data, but we also can do it as reinvestment to invest every project for the same years. For every question, I will give answers for both normal investment and reinvestment.
1. We can rank the projects simply by the cash flow data.
Normal investment:
Rank
1
2
3
4
5
6
7
8
Project number
3
8
6
1
5
7
4
2
Cash flow
8000
2150
200
1310
2200
560
1561
165
Reinvestment:
Rank
1
2
3
4
5
6
7
8
Project number
3
8
6
1
5
7
4
2
Cash flow
8000
4300
3000
2620
2200
1680
1561
825
However, the rank simply inspected by the cash flows is not the best method to evaluate the projects. Because this method does not consider time period, WACC, Net present value and other factors. All the factors could affect the value of project. 2. To evaluate the investment projects, we can use 5 main methods, NPV, IRR, MIRR, payback and discount payback. Each method has different advantage to evaluate the investment projects. It is better to use NPV and MIRR methods to evaluate the projects. NPV can provide basic accurate methods to use time value of money to estimate investments. MIRR includes both WACC and reinvestment rate; therefore, it is more accurate to evaluate the investments.
3. First, NPV is the most common and useful method. It provides a direct measure of value that increases shareholders’ wealth.
Normal:
Rank
1
2
3
4
5
6
7
8
Project number
3
4
8
7
5
1
6
2
NPV
$393.92
$228.22
$182.98
$165.04
$129.70 73.09
$0.00
-$85.45
Reinvestment:
Rank
1
2
3
4
5
6
7
8
Project number
3
7
8
4
5
1
6
2
NPV
$393.92
$331.15
$276.88
$228.22
$129.70
$107.18
$0.00
-$261.36
Second, IRR and MIRR measure an obvious profitability as a percentage rate of return. Decision makers and investors are very interesting with this rate. But MIRR is better than IRR because MIRR will includes both reinvestment rate and WACC.
IRR

You May Also Find These Documents Helpful

  • Powerful Essays

    The results of the analysis lend favourably towards accepting the investment project. First it is important to note that based on the after tax cost of borrowing and a risk premium of 3.75%, a discount rate of 8.89% was deemed appropriate for the project. The majority of the investment indicators used to value the project use discounted cash flows to determine the investment’s profitability. This technique allows for comparison amongst different investment opportunities available, as it provides the total return that is expected to be achieved over the project’s horizon in current dollar terms.…

    • 3248 Words
    • 13 Pages
    Powerful Essays
  • Satisfactory Essays

    BGA1 Task 4

    • 343 Words
    • 2 Pages

    Net present value (NPV) method is used to decide whether or not a company should take on a new project or acquisition. The formula for NPV is the difference between the present value of a project’s cash inflows and its cash outflows. To calculate the present values the future cash flows are discounted using the time value of money method. For the project to be accepted the NPV should be positive, because it means the return is greater than the required rate of return; or zero, because that means the return is equal to the required rate of return. However, if negative the project should be rejected, because its return is less than the required rate of return. This required rate of return is also referred to as the cost of capital.…

    • 343 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    BGA1 Task4

    • 349 Words
    • 2 Pages

    1. Net Present Value method is one of the methods used in capital budgeting. The NPV is based on the discontinued cash flow. A company that has a proposal for a new project or an investment uses the NPV method to decide if they should accept it or move on with a different investment. This method provides valuable information to the management about the cash outflows related to the investment and cash inflows from the investment with the consideration of the time value of money. The time value of money has been considered in this method because the money invested today will have a different value in the future.…

    • 349 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Fi515

    • 967 Words
    • 4 Pages

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

    • 967 Words
    • 4 Pages
    Good Essays
  • Good Essays

    One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.…

    • 1352 Words
    • 6 Pages
    Good Essays
  • Good Essays

    Paccar Build vs Buy

    • 655 Words
    • 3 Pages

    NPV (Net Present Value) measures the expected change in wealth from undertaking the project. The NPV of purchasing is $60.34 million and $93.23 million for developing the technologies. NPV is the most effective measurement since both IRR and MIRR have the project scale issues. In this case, developing the technologies gives a greater NPV and is the best choice.…

    • 655 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Finance 459 help

    • 537 Words
    • 3 Pages

    Alternatively, EVA (Economic Value Added) = NOPAT – WACC (Invested Capital) can be applied to value the value of investment project.…

    • 537 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Hrm/531 Week 3 Quiz

    • 1150 Words
    • 5 Pages

    Calculating combinations of different projects will give Cynthia a better idea in which projects to invest in. NPV also provides proper rule for choosing mutually exclusive projects…

    • 1150 Words
    • 5 Pages
    Good Essays
  • Good Essays

    By using the same concept above we can determine the present value of Gold Mine.…

    • 1099 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    FINC2011 Assessment

    • 2131 Words
    • 9 Pages

    The Net Present Value method discounts future cash flows of a project in attempt to discover the value of a project in present terms, considering the time value of money. Multiplying the tax rate by the incremental taxable profit, where incremental taxable profit is found by misusing expenses and depreciation from annual revenues, provides the NPV.…

    • 2131 Words
    • 9 Pages
    Powerful Essays
  • Satisfactory Essays

    ACC212

    • 518 Words
    • 3 Pages

    In preference decisions, the profitability index and internal rate of return methods may produce conflicting rankings of projects.…

    • 518 Words
    • 3 Pages
    Satisfactory Essays
  • Better Essays

    Victoria Chemicals

    • 788 Words
    • 4 Pages

    (3) NPV of free cash flow evaluates the dollar contribution of the project to shareholders.…

    • 788 Words
    • 4 Pages
    Better Essays
  • Satisfactory Essays

    I consider IRR as independent variable, NPV at minimum ROR and Equivalent Annuity as functions (just like Polynomials function in Math) for each 10 projects because project 6 (Effluent – water treatment at four plants) definitely should be done.…

    • 340 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Package ‘randomForest’ February 20, 2015 Title Breiman and Cutler 's random forests for classification and regression Version 4.6-10 Date 2014-07-17 Depends R (>= 2.5.0), stats Suggests RColorBrewer, MASS Author Fortran original by Leo Breiman and Adele Cutler, R port by Andy Liaw and Matthew Wiener. Description Classification and regression based on a forest of trees using random inputs. Maintainer Andy Liaw <andy_liaw@merck.com> License GPL (>= 2) URL http://stat-www.berkeley.edu/users/breiman/RandomForests…

    • 6545 Words
    • 73 Pages
    Satisfactory Essays
  • Good Essays

    Harding Plastic Company

    • 558 Words
    • 3 Pages

    Although all methods might grant projects acceptable ratings, NPV, PI, and IRR will not necessarily yield the same ranking order. Such a phenomenon is the result of different cash inflows over time (projects A and B), time horizons (projects E and F) and/or project sizes (projects C and D).…

    • 558 Words
    • 3 Pages
    Good Essays

Related Topics