The above two decisions are related in that they both lead to the same conclusion of rejecting the investment project. The NPV calculation indicates that the present value of all future cash flows is negative, which means that the project will not generate enough return to cover its initial cost and is therefore not financially feasible. Similarly, the IRR calculation shows that the actual rate of return earned by the project is lower than the required rate of return, indicating a lack of profitability. Both methods indicate that investing in this project would result in a net loss rather than a gain for the company. Therefore, it is recommended to reject this investment opportunity based on both NPV and IRR analyses.
An investment project has the following cash flows: CF0 = -1,000,000; CF1 – CF5 = 250,000 each. If the required rate of return is 10%: NPV =-1000000+227272.27+206611.57+187828.7+170753.36+155230.33 =-52303.31 Decision: The decision is reject ...
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