A company is considering two alternative investment projects both of which have a positive net present value. The projects have been ranked on the basis of both net present value (NPV) and internal rate of return (IRR). The result of the ranking is shown below: Project A Project B NPV 1st 2nd IRR 2nd 1st Discuss any four (4) potential reasons why the conflict between the NPV and IRR ranking may have arisen B. Kumi Ltd is considering an investment in a project, which requires immediate payment of GHS15,000, followed by a further investment of GHS5,400 at the end of the first year. The subsequent return phase net cash inflows are expected to arise at the end of the following years: Year 1 2 3 4 5 Cash inflow (GHS) 6,500 7,750 5,750 4,750 3,750 You are required to estimate the internal rate of return of this project assuming the company’s cost of capital of 16%.
A company is considering two alternative investment projects both of which have a positive
Project A Project B NPV 1st 2nd IRR 2nd 1st Discuss any four (4) potential reasons why the conflict between the NPV and IRR ranking may have arisen
B. Kumi Ltd is considering an investment in a project, which requires immediate payment of GHS15,000, followed by a further investment of GHS5,400 at the end of the first year. The subsequent return phase net cash inflows are expected to arise at the end of the following years: Year 1 2 3 4 5
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