Question
Prompt: Consider the financial project through the lens of the four investment decision rules. Scenario: Suppose you have the opportunity to buy into a restaurant
Prompt: Consider the financial project through the lens of the four investment decision rules.
Scenario: Suppose you have the opportunity to buy into a restaurant business. The initial cost to you is $1,000,000. Looking at the financials, you determine that the business will return a profit of $100,000 per year, forever. Assume the initial $1,000,000 outlay occurs immediately (today), and the flow of $100,000 profits comes to you at the end of each year going forward. Assume the discount rate is 5%.
Step One: Calculate NPV.
Step Two: Calculate the IRR.
Step Three: Calculate the payback period.
Step Four: Calculate the PI.
Question One: Using the four investment decision rules, determine whether or not to move forward with the project. Justify your answer.
Scenario: Fictional organization, ABC Company, is considering two alternative investments, Project One and Project Two.
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Step One: Calculate NPV for each project.
Step Two: Calculate the IRR for each project.
Step Three: Calculate the payback period for each project.
Step Four: Calculate the PI for each project.
Question Two: Which project would you invest in, Project One or Project Two? How does each decision rule lead you to your specific decision?
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