项目可行性分析预估project appraisal 12.docx

项目可行性分析预估project appraisal 12.docx

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项目可行性分析预估projectappraisal12

B.INTERNALRATEOFRETURN（IRR）

ProblemswithIRR

∙Multiplesolutions

e.g.,ifyoutrycashflows;-3,000（time=0）,+15,000（time=1）,-13,000（time=2）,youwillfindtwoIRRs11.56%and288.4%

∙Ranking

IRRdoesnotconsiderthesize/scaleofproject.

Whythenisitapopularmethod?

∙Psychological.

∙Norequirementofcalculatingthecostofcapital.

QUESTION

SeddetInternationalisconsideringfourmajorprojectswhichhaveeithertwo-orthree-yearlives.

Projects

T0

T1

T2

T3

A

-5,266

2,500

2,500

2,500

B

-8,000

0

0

10,000

C

-2,100

200

2,900

0

D

-1,975

1,600

800

0

Otherfirms’sharesinthisriskclasshavegenerallygivenareturnof16%perannum.

a.ThemanagervaguelyunderstandsIRRandinsiststhatyouusethistocalculatewhichofthefourprojectsshouldbeproceedwith,iftherearenolimitationsonthenumberwhichcanbeundertaken.

b.Statewhichisthebestprojectiftheyaremutuallyexclusive,usingIRR

c.UsetheNPVdecisionruletoranktheprojectsandexplainwhy,underconditionofmutuallyexclusivity,theselectedprojectdiffersfromthatunder（b）.

d.Writeareportforthemanagingdirector,detailingthevalueoftheNPVforshareholderwealthenhancementandexplainingwhyitmaybeconsideredofgreaterusethanIRR.