A Capital Budgeting Problem NPV vs IRR A b s t r ac t This case deals with capital budgeting It deals with evaluation of a project using Net Present Value (NPV) and the Internal Rate of Return (IRR) methods Students will learn about NPV and IRR methods and their advantages and disadvantages They will learn how to compute the NPV and the IRR of the project They will also learn about the problems with the IRR method Finally, students will prepare the NPV Profile of the project and use it to more critically evaluate the project This is a hands on experience for students who want to learn more about capital budgeting First, he wants to use the IRR method to find the expected return from this investment When he enters the cash flows into his calculator, he finds the IRR By looking at this number, he knows whether his company should invest in this project Just as he was writing his report, he remembered something from his undergraduate class Maybe the decision is not as simple as he thinks What do you think Should he go ahead and submit his final report to his boss, or should he continue analyzing the numbers (3 Marks) Hint Think about the problems with IRR The IRR method is weak in some cases and What type of problems does the IRR method have in general Has Rashid encountered any one of these problems

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Aug 29, 2024

A Capital Budgeting Problem: NPV vs IRR A b s t r ac t This case deals with capital budgeting. It deals with evaluation of

A Capital Budgeting Problem: NPV vs IRR

Abstract

This case deals with capital budgeting. It deals with evaluation of a project using Net Present Value (NPV) and the Internal Rate of Return (IRR) methods. Students will learn about NPV and IRR methods and their advantages and disadvantages. They will learn how to compute the NPV and the IRR of the project. They will also learn about the problems with the IRR method. Finally, students will prepare the NPV Profile of the project and use it to more critically evaluate the project. This is a hands-on experience for students who want to learn more about capital budgeting.

First, he wants to use the IRR method to find the expected % return from this investment. When he enters the cash flows into his calculator, he finds the IRR. By looking at this number, he knows whether his company should invest in this project. Just as he was writing his report, he remembered something from his undergraduate class. Maybe the decision is not as simple as he thinks. What do you think? Should he go ahead and submit his final report to his boss, or should he continue analyzing the numbers? (3 Marks) Hint: Think about the problems with IRR. The IRR method is weak in some cases. and What type of problems does the IRR method have in general? Has Rashid encountered any one of these problems? .