The Inestment Detective – Case Study – Michele Kinama
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The Inestment Detective
When ranking projects there is a lot of criteria to be considered before making a decision. While it is important to have a project that generates a large excess of cash flow over the initial investment, however, it is not an accurate depiction of how profitable a project can be in the long term. Some other criteria that should be used when determining which project is profitable are the net present value, internal rate of return and payback period. Net present value is a good quantitative ranking method, because it tells decision makers how much money the project will generate if the value was to be received in the present. Internal rate of return helps decision makers quantify the desirability of a project. Payback value is important, because it lets the company know how long it will take to finish paying off the initial investment and start creating money off of the project. The top four projects that I found using quantitative methods are Projects 7,4,8 and 5. Project 7 is the best, because it has an NPV of $165,040.89, an IRR of 15.26% and a payback period of 1.89 years. The next best project is Project 4. Even though the payback period is 6.052 years, which is a little long than Project 8, the NPV value is $228,221.95 and the IRR is 12.328. The third best project is Project 8 with an NPV of $182,984.41, and IRR of 11.406% and a payback period of 6.004 years. The last best project is Project 5 with an NPV of $129,702.26, an IRR of 11.122% and a payback period of 7.143 years. This ranking is very different than if the ranking was just based off of excess cash flow over initial investment. The order would instead be Project 3 followed by Project 8, then Project 5 and then Project 4. While Project 3 has an NPV value of $393, 920.49, the largest out of all 8 projects, it will take the company 14.2 to be paid back their initial investment. Even though Projects 4,5 and 8 are all very good projects to invest in, this method excludes Project 7, which has the highest IRR out of all the projects, making it the most desirable.
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By: Michele Kinama
Submitted: March 4, 2016
Essay Length: 372 Words / 2 Pages
Paper type: Case Study Views: 350
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