Interested to Buy Any Domain ? << Click Here >> for more details...
what is the difference between npv and irr method of capital
budgeting and which one is better?
- 5 Answers
- 15835 Views
- Capital IQ, I also Faced
- E-Mail Answers
Answer Posted / mayank
NPV and iRR are the capital budgetin technique which are
used to determine wheather a firms long term investment
decision is correct or not.
using net present value mathod we can calculate the
presrent value of all the future cash generated due to the
investment, adding those casf flow andthen subtracting the
aggregated amount from the initial investment we can
calculate the npv of that project if the npv is positive
then project is good for investment, vicaversa
internal rate of return is calculated when NPV is zero, it
is a rate which determine the growth rate due to the
investment
| Is This Answer Correct ? | 4 Yes | 15 No |
Post New Answer View All Answers
What are your areas of interest?
WHAT ARE THE SECTIONS OF SOX THAT ARE RELATED TO INTERNAL CONTROL?
Which organization controls the monetary policy of our country?
How will you define NPA? Are there any ways to reduce NPAs in the banks?
What steps are required to develop a product from an idea?
Read the case given below and answer the questions given at the end. Krutika Designers Ltd is an Indian company engaged in designing shirts for an international shirt manufacturer. Its operations are currently restricted to designing shirts for the Indian market. The firm is interested in extending its operations to the European markets, but is restricted by its lack of knowledge about the latest fashions and trends prevailing there. Hence, the firm has decided to open an office in Finland for establishing a network in Europe that will give the firm access to the needed information. The firm feels that its does not have the capability of sustaining itself in the foreign markets in the long-term, and will be able to generate additional revenue from these activities only for the next 5 years. After that, the Finnish office will have to be closed down. The firm anticipates an initial investment of Rs.14 million. The project is expected to generate the following cash flows over the 5 years period. Year Cash flow (Finnish Marks) 1 2 3 4 5 10,00,000 20,00,000 50,00,000 50,00,000 30,00,000 These cash flows are expressed in terms of today’s money. The firm can claim depreciation in India according to the Straight Line Method. The salvage value from the project is expected to be nil. The Finnish Government does not provide any incentives for foreign investments. However, currently it is making an attempt to have better economic ties with India. Hence, it has decided to extend a loan of 50,000 marks to Krutika Designers. The loan will be at a concessional interest rate of 7%. The loan is to be repaid in 5 equal annual installments which will include the interest payments. The project will generate additional borrowing capacity of Rs.5 million for the firm. However, as the firm does not have any firm contract with the international shirt manufacturer, its domestic revenues are expected to be very volatile. Therefore, there is no surely that the firm will be able to absorb the tax benefits arising out of depreciation and additional borrowing capacity. The firm does not intend to indulge in any illegal money transfers. The current spot rate for the Finnish Mark is Rs.7.25/FM. The inflation rates in India and Finland for the next 5 years are expected to be 8% and 3% respectively. The exchange rate is expected to move in tandem with the inflation rates. Indian tax rate is 35% while Finnish tax rate is 40%. India and Finland have entered into a tax treaty whereby the earnings of the residents of one country are taxable in that country only. In India, the nominal risk-free interest rate is 11%. The same is 6% in Finland. The Indian nominal interest rate (including risk-premium) is 15%, while that in Finland is 9%. The nominal all-equity rate in India is 18%. 1. Comment on the financial viability of the project. 2. What are the different circumstances in which nominal all-equity discount rate and real all equity discount rate should be used for discounting the cash flows? Explain the rationale behind it. 3. Comment on the financial viability of the project if the firm is sure about being able to absorb the tax benefits arising out of depreciation and increased borrowing capacity. 4. Explain the concept of exchange risk and how it affects an international project. 5. How can the financial structure of a project be used to overcome repatriation restrictions? What are the additional benefits of such maneuvers?
Explain the importance of organizational, culture and political issues in the proces of merger integration
Describe the advantages and disadvantages of international trade?
What are nominal value/ free value of shares?
Explain About Openpages Policy And Compliance Management ?
What is 'i-net'?
State types of mutual funds schemes.
Suppose to top five gainers on BSE same company can loser on NSE?
What Is Accrued Income?
What does money laundering involve?
