BUSN379 Discussions Week 4

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BUSN379 Discussions Week 4
Discuss the pros and cons of net present value. Class, we learned in Week 2 that we can…

 

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BUSN379 Discussions Week 4

BUSN379 Discussions Week 4

All Students Posts 35 Pages 

Net Present Value and Related Tools – 18 Pages 

Discuss the pros and cons of net present value. Class, we learned in Week 2 that we can take the cash inflows and outflows of a project and use the Present Value to analyze if the project was worth or not. Can you provide some examples of real-life project scenarios?…

Internal Rate of Return – 17 Pages 

Are there situations where a manger would prefer to use IRR? Why? Class, consider the project length, the competition and the estimated sales. How do these factors affect project risk?

A company is planning on building a new production facility. The initial investment is $50 million and each year for the next 20 years they expect to receive $10 million in revenues from the project. In year 5 they need to invest an additional $20 million in equipment. Do you see the problem here? In year 1 and 5 cash flows will be negative. This is different from other traditional projects in which year 1 is the only that has negative cash flows. Thus, if you calculate the IRR for this project you may end up with two of them, which one do you use? This is the main drawback of the method.
Any other drawbacks you see in using the IRR? …