The following projects are being considered by the Corporate Investment Committee who has an investment budget of
Question:
The following projects are being considered by the Corporate Investment Committee who has an investment budget of $1,000,000. The budget restriction is for the upfront investments in the current year only. Project approval will be granted if the payback is achieved within 3 years. The MARR used for the evaluation should be 12%. The corporate criteria are that projects should pay back their investment in 4 years.
a. What is the discounted payback period for each project?
b. What is the Internal Rate of Return for each project?
c. Discuss which project(s) should be chosen considering these twocriteria.
Internal Rate of ReturnInternal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...
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Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta