1. Discounted Payback statistic (DPB) takes in account the time value of money as this analyzed over a 10-year period. Only if the project is greater than the maximum allowable discounted payback will the company proceed. DPB is also valuable for indicating the time necessary to repay principal plus interest.

Net Present Value (NPV) for its ability to measure the financial gain that we expect from accepting the project. It is the present value of an investment’s expected cash inflow minus the costs of acquiring the investment which can be calculated over the 10 years (uses TVM). The calculation includes the necessary capital expenditures and other startup cost of the project as cash outflows, a positive value means that the project will be desirable. It is a clear way to know if it will add value to the company and benefit company shareholders.

Internal Rate of Return (IRR) as it will give that same accept/reject decision as NPV since the project has normal cash flows and being independently of other projects. It is the rate of growth a project is expected to generate, the higher the IRR, the better chance of strong growth. Any project with IRR greater that its cost of capital is a profitable and it is in the company’s best interest to undertake it. Due to the 10-year timeframe of this project, it should be performed in conjunction with other metrics versus alone for better analytics. Ratio based statistics could lose crucial information as they do not reflect the mount of the investment on which that return is based. They are, however, easily compared to the expected ‘earned’ rate of return with the ‘borrowing’ rates potential lenders and capital markets are quoting to them. When IRR is compared against prevailing rate of return in the securities market and if the project does not generate greater returns that in the market, the market would be a better investment. When analyzing a project's desirability, which factor do you believe is more important: the technique to analyze investment acceptability, or the use of the most accurate projections of cash flows? Why? The technique to analyze the acceptability is more important. The techniques of capital budgeting allow the ability to analyze large amounts of funds along with the view of long-term impacts of the potential investment. It aids in competitive market as it encourages the investment of company funds in an asset which could lead to the ongoing growth and expansion. Accurate projections of cash flows can be unpredictable as fluctuations are much like the weather. Variables with cash flows can range from risk itself, changes in the market, unexpected increases in costs of goods and services over time, technology changes as well as inaccurate information.

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• I would select Payback, NPV, and IRR in order to be the most prepared in making the most of important financial decisions. Payback is a capital budgeting technique that generates decision rules and associated metrics for selecting projects based on how quickly they return their initial investment. Payback seems to be the easiest to calculate and straight forward, allowing a quick measurement of any projects liquidity. Net Present Value according to investopedia.com is described as a value in the present of the sum of money with contrast to some future value it will have when it has been invested at compound interest. The intent of NPV is to maximize the wealth of all shareholders involved. When the NPV is negative then the project is rejected, but when the NPV is positive then the project is accepted. Internal Rate of Revenue is "a capital budgeting technique that generates decision rules and associated metrics for choosing projects based on the implicit expected geometric average of a projects rate of return." The IRR method happens to be so similar to the NPV method with the exception that it calculates for the internal rate of return as opposed to using an interest rate that is known.

• When analyzing a project's desirability, which factor do you believe is more important: the technique to analyze investment acceptability, or the use of the most accurate projections of cash flows? Why? Analyzing the worth of the investment is very important because you need to find out the worth of the actual investment. More importantly using the most accurate projections will result in a close assumption of the projects desirability. Achieving the most accurate results will lead you to the most profitable outcome which is typically the end goal. All of the techniques are similar in some form or another, deciding which method and technique is appropriate is the key decision.

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DISCUSSION POST 1 I concur that Discounted Payback statistic DPB takes into account the value ... View the full answer