Decision in corporate finance concerns how to invest the scarce resources contributed to the company by partners and creditors. The process involved in making this kind of decision is referred to in academic texts on corporate finance as Capital Budgeting and basically refers to the process used in corporations to analyze and choose investment projects.

Capital budgeting describes the long-term planning to evaluate, choose the investments to be made, and monitor the capital disbursements of the company's projects or programs (HORNGREN; SUNDEM; STRATTON, 2004).

Therefore, companies are interested, before implementing the project, in knowing about its future results, or maybe they are interested in choosing, besides feasible projects, the best project among some alternatives. The financial viability analysis tools allow us to observe, under several perspectives (profitability, gain, time, etc.), this best alternative, and they do it through mathematical methods.

Thus, knowing how to analyze the financial information of projects and, above all, knowing which tools to use for this analysis is something fundamental when it comes to financial management and feasibility analysis.

Carefully analyze Chart 1, which is representing the NPV (net present value, vertical y-axis) generated by two distinct projects (blue and orange) based on different interest rates (discount rates, horizontal x-axis), as well as the TMA (minimum rate of attractiveness, in black) established by the financial manager.

1) What relevant information can we extract from the above graph regarding IRR,NPV, AMR and economic viability of the projects individually? (Consider initially that they are independent. You may indicate approximate values)

2) If mutually exclusive, that is, if only one of the projects can be realized, which of the two projects should be chosen? Justify?

3) What is the significance of the intersection between the project lines represented by point A in the graph?

4) For a discount rate (TMA) of 24%, which project is better?

5) What is the minimum rate of attractiveness (TMA) beyond which the blue project would become unfeasible? Justify (you can indicate approximate values)

Projects, NPV and Discount Rate -RS 100,00