The Jovi Group is deciding whether to proceed with one of two projects that have a...

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The Jovi Group is deciding whether to proceed with one of two projects that have a three-year life. Their respective IRR (highlighted) assuming relevant cash flows are as follows (£000s): Year Project 1 Project 2 Cost 0 1,000 1,000 Annual 1 500 1,000 Net 2 700 500 Inflows IRR 3 900 500 43% 54% Given that Jovi's cost of capital is a uniform 10 percent throughout each project: 1. Calculate the appropriate PV discount factors. 2. Derive each project's NPV compared to IRR and highlight which (if any) maximises corporate wealth according to both investment criteria. 3. Use the NTV concept to prove that NPV maximises wealth in absolute money terms. 4. Explain why IRR and NPV rank projects differently using a graphical analysis. The Jovi Group is deciding whether to proceed with one of two projects that have a three-year life. Their respective IRR (highlighted) assuming relevant cash flows are as follows (£000s): Year Project 1 Project 2 Cost 0 1,000 1,000 Annual 1 500 1,000 Net 2 700 500 Inflows IRR 3 900 500 43% 54% Given that Jovi's cost of capital is a uniform 10 percent throughout each project: 1. Calculate the appropriate PV discount factors. 2. Derive each project's NPV compared to IRR and highlight which (if any) maximises corporate wealth according to both investment criteria. 3. Use the NTV concept to prove that NPV maximises wealth in absolute money terms. 4. Explain why IRR and NPV rank projects differently using a graphical analysis.

Answer rating: 100% (QA)

Analyzing Jovi Group Projects 1 PV Discount Factors The discount factor for each year is calculated using the formula Discount Factor 1 1 Cost of Capi... View the full answer