appraising and ranking viable projects
Question 1
When one is appraising and ranking viable projects, a lot of factors are put into consideration, depending on the methods that one uses for the appraisal. Additionally, it’s also advisable to use more than one technique depending on arriving at a more conclusive decision. However, when the several methods used to give a conflicting opinion, The net present value technique prevails. Therefore, merely inspecting the cash flows presented in the exhibit one is not sufficient to rank the projects in accordance the there viability. Other factors must be considered, such as the company’s required rate of return, the weighted cost of capital, and there dependence on one another.
Question 2
Several methods are used to rank the project includes the Net present value, Internal rate of return, and payback period, and the profitability index. However, among all these techniques, the net current worth is the ideal one. According to the NPV, all projects with positive NPV should be undertaken while others are rejected. The net present value method has several advantages. For instance, unlike other appraisal techniques such as the payback period, it takes into account the times value for money by acknowledging a dollar today is worth more than a dollar in the future. Second, it shows the amount of value the project will generate. Lastly, NPV takes into account the cost of capital and other inherent risks of future cash inflows such as inflation.
Question 3
Question 4
Project 1
Similar to cashflow from coupon bond investment
Project 2
Closely relates to Venture capital investment where large cash inflows are recognized towards the end
Project 3
Similar to a zero-coupon bond, where the bond is purchased at a specific price and receives a significant cash outflow towards the end of the maturity period
Project 4
Investment in construction where one incurs a cost in the first few years before the project starts producing a positive cashflow
Project 5
Resemble cashflows from an annuity
Project 6
Similar to project 2 resembling venture capital investment
Project 7 and 8
Similar to project four which can be an investment in construction