Question
Q8. You have been working some long days recently, analyzing a project for your company's president. If the project gets a green light to go
Q8. You have been working some long days recently, analyzing a project for your company's president. If the project gets a green light to go ahead it will involve a multi-year commitment and will be quite expensive. If your numbers are correct, then the expansion will have an NPV of - $250,000, and an IRR of 15%. The cash flows would be conventional, were it not for a major remediation expense at the end of the project's life. This would be an outflow during the final period. The firm's required return is 8%. One of the company's vice presidents has adamantly argued that the decision should be made using the IRR because it is "simple, error-free, and much more reliable than these fancy discounted cash flow models. We should do this, obviously, because the IRR is higher than our required return." She went on to say that she has been working on projects like this for over 30 years and her experience should not be ignored. Your job is to convince the board to either accept or reject the project. Discuss.
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