(Four capital budgeting techniques are NPV,IRR,Payback and ARR)
Homework Answers
NPV
Strength
considered time value of money
wide scale acceptance
Weakness
NPV is measured by cash flow not by profit and loss
based on ranking system
IRR
Strength
simple for making decision
favoured by many companies
Weakness
many assumption involved
ignores project size
Payback
Strength
Focus on cost returns
determine the time period in which cost will be recovered
Weakness
not useful for the comparision of the project
ignored profitability of project
ARR
Strengths
focus on cost and savings
Easy to calculate
measures current performance
Weakness
ignored time factor
can create conflict because of assumptions
does not considered when cash flow is important than earning aspect
the best technique to be used is NPV, because it considered cash flow can determine profits and also involve time factor
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(Four capital budgeting techniques are NPV,IRR,Payback and
ARR)
Discuss the strengths and weaknesses of the four...
Compare and contrast the four most common capital budgeting techniques: NPV, IRR, Payback, and Ac...
Compare and contrast the four most common capital budgeting techniques: NPV, IRR, Payback, and Accounting Rate of Return. What are the strengths and weaknesses of each when used as the sole investment criterion? Why do most companies use more than one method when evaluating projects? Identify several non quantitative factors that are apt to play a decisive role in the final selection of projects for capital expenditures.
Calculate the payback period, ARR, IRR and NPV (at 12%) for two proposed four-year projects, B1...
Calculate the payback period, ARR, IRR and NPV (at 12%) for two proposed four-year projects, B1 and B2, the cash flows (EBDIT) for which are as follows: Year 0 1 2 3 4 B1 -60,000 9,000 10,000 25,000 30,000 B2 -60,000 30,000 25,000 10,000 9,000 (Assume that straight-line depreciation is applicable and that there is no income tax.) Why are the NPV and IRR of project B2 superior to B1?
Define the most important capital budgeting techniques. name at least two (2) capital budgeting techniques (e.g.,...
Define the most important capital budgeting techniques. name at least two (2) capital budgeting techniques (e.g., NPV, IRR) that you used to arrive investment decision.
Abstract This case deals with the capital budgeting techniques of Net Present Value (i.e. NPV) and...
Abstract This case deals with the capital budgeting techniques of Net Present Value (i.e. NPV) and Internal Rate of Return (i.e. IRR). In this case, students will compare two mutually exclusive projects using NPV and IRR, and choose the best project. They will learn about NPV and IRR methods and their advantages and disadvantages. Students will also learn the weakness of the IRR method when comparing two or more projects. Finally, they will evaluate the two projects assuming that the...
some methods of investment valuation, including ARR, Payback Period, NPV, IRR. As an investor which method...
some methods of investment valuation, including ARR, Payback Period, NPV, IRR. As an investor which method would you use and why?
Identify four capital investment evaluation methods and discuss the strengths and weaknesses of each method.
Identify four capital investment evaluation methods and discuss the strengths and weaknesses of each method.
Which of the capital budgeting techniques can resolve potential conflicts that may arise using NPV and...
Which of the capital budgeting techniques can resolve potential conflicts that may arise using NPV and IRR.
Respondents are asked to score how frequently they use the different capital budgeting techniques on a...
Respondents are asked to score how frequently they use the different capital budgeting techniques on a scale of 0 to 4 (0 meaning "never", 4 meaning "always"). In many respects, the results differ from previous surveys, perhaps because we have a more diverse sample. An important caveat here, and throughout the survey, is that the response represents beliefs. We have no way of verifying that the beliefs coincide with actions. Most respondents select net present value and internal rate of...
1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment....
1.
Compute the payback period, the ARR, the NPV, and the
approximate IRR of this investment. (If you use the tables to
compute the IRR, answer with the closest interest rate shown in
the tables.)
2.
Recommend whether the company should invest in this project.
Rapid Wave is considering purchasing a water park in Oakland, California, for $1,950,000. The new facility will generate annual net cash inflows of $500,000 for eight years. Engineers estimate that the facility will remain useful...
Some financial mangers prefer capital budgeting models such as internal rate of return (IRR) or non-...
Some financial mangers prefer capital budgeting models such as internal rate of return (IRR) or non- discounted payback models over the net present value (NPV) the model, which is preferred by academic financial analysts. Why? Briefly discuss. [Word Limit: 500 words]
1.
Compute the payback period, the ARR, the NPV, and the
approximate IRR of this investment. (If you use the tables to
compute the IRR, answer with the closest interest rate shown in
the tables.)
2.
Recommend whether the company should invest in this project.
Rapid Wave is considering purchasing a water park in Oakland, California, for $1,950,000. The new facility will generate annual net cash inflows of $500,000 for eight years. Engineers estimate that the facility will remain useful...
Some financial mangers prefer capital budgeting models such as internal rate of return (IRR) or non- discounted payback models over the net present value (NPV) the model, which is preferred by academic financial analysts. Why? Briefly discuss. [Word Limit: 500 words]
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