Net Cash Flow Task 2 Coursework Example | Topics and Well Written Essays - 500 words

last(a) Cash Flow Task 2 - Coursework ExampleHowever, the sort out Present Value is very low. thither are two reasons why Person K should not invest in a ramble with such a low NPV. The first is that other projects are likely to be available in the market that can give a higher NPV. Investing in this project has an opportunity speak to equal to the return obtainable from those projects. Secondly, such a low NPV would leave little room for risks, and would be extremely sensitive. For example, if the expected sales fall by 10%, the project might show a negative NPV. Hence it is not advisable to invest in this project.Answer The IRR for the project is 13.31%, which is higher than the woo of capital by 1.31%. For reasons similar to those advanced in the case of pass based on NPV above, the recommendation is that Person K should not invest in this projecta) Rationale for recommendation The IRR for the project is 13.31%, which is tho marginally higher than the cost of capital. If Pe rson K had an unlimited amount of money to invest, this project would exchange for investment. However, in a situation where there is a limited amount of capital to be invested, the returns should be maximized, and investing in low yielding projects would deprive Person K of the opportunity to invest in alterative high yielding projects. Secondly, the sensitivity of the project to variations in the assumptions would be very high, and small changes in the assumption would upset the entire calculation.Answer Internal Rate of Return is the rate at which the Net Present Value becomes equal to 0. Accounting Rate of Return is the average net income from the project divided by the investment. Conceptually the two figures are very different. Internal rate of Return considers the actual coin flows, including the initial investment, whereas Accounting Rate of Return considers the Profit for each period after charging depreciation on the assets procured with the initial investment. Secondly , Internal Rate of