PI and IRR can be interpreted as measuring a project's bang for the buck as well as
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PI and IRR can be interpreted as measuring a project's "bang for the buck" as well as its "margin for error." Consider Projects A and B, below. The WACC is 10%.
a. Calculate the NPV, IRR, and PI for each project. What can you conclude about the two projects?
b. Suppose the outflow at Year 0 is correct but the inflows in Years 1 — 4 are 10% smaller than originally forecast. What can you conclude about the two projects now? Why did this happen?
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Related Book For
Intermediate Financial Management
ISBN: 9780357516669
14th Edition
Authors: Eugene F Brigham, Phillip R Daves
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