Investment Detective

The investment detective 1. We can not not rank the the projects projects by only only simple simple inspectio inspection n of the cash cash flows flows because because of  the time value of money and cost of capital of companies. We use capital budgeting tools to measure financial performance of projects. The major available tools are IRR, MIRR and NPV. By using these tools we can conclude whether sum of the cash flows of a project exceeds expected return rate or cost of capital of a company or not. Also there are qualitative factors that should be considered. A project can be critical for the company and even it has negative NPV, it could be accepted. Also a company would prefer to have small experiments to identify possible profitable  businesses before making a heavy investment to enter the market. In this case quantitative methods would not be enough to analyze the project. Because most of the cash flows are estimated in most of the projects, quality of  estimation is another factor to be considered besides numerical capital budgeting tool results. 2. I would use use NPV since since it is superior superior compared compared with IRR. IRR. I would also also use profitab profitability ility index. I would use also MIRR to enable easy communication among non-financial managers in the company by giving them a percentage score to evaluate projects. Finally I would calculate pay back information. 3. Proj Projec ectt anal analys ysis is Project # NPV PI MIRR Payback

1

2

3

4

5

6

7

8

73.09

-85.45

393.92

707.01

129.70

0.00

165.04

182.98

1.037

0.957

1.197

1.285

1.065

1.000

1.083

1.077

10.4 10.49% 9% 6.06

8.41 8.41% % 11.3 11.33% 3% 11.8 11.86% 6% 10.4 10.46% 6% 10.0 10.00% 0% 11.7 11.76% 6% 11.1 11.18% 8% 2.00

14.20

6.05

7.14

0.90

1.88

6.08

Ranking with NPV Project # NPV PI MIRR Payback

2

6

1

5

7

8

3

4

-85.45

0.00

73.09

129.70

165.04

182.98

393.92

707.01

0.957

1.000

1.037

1.065

1.083

1.077

1.197

1.285

8.41 8.41% % 10.0 10.00% 0% 10.4 10.49% 9% 10.4 10.46% 6% 11.7 11.76% 6% 11.1 11.18% 8% 11.3 11.33% 3% 11.8 11.86% 6% 2.00

0.90

6.06

I would suggest to accept project 4, 7, 5 and 1.

7.14

1.88

6.08

14.20

6.05