Question

Period	0	1	2	3	4	5	6	7	8	9	10	11	PBP	NPV	IRR
Project A	$                       (1,000,000)	$ 200,000	$ 200,000	$ 200,000	$ 200,000	$ 200,000	$ 200,000	$ 200,000	$ 200,000	$ 200,000	$ 200,000	$ 400,000
Project B	$                       (1,000,000)	$ 500,000	$ 500,000	$ 500,000
Project C	$                             (80,000)	$      1,040	$      9,456	$    11,405	$    18,567	$    47,453	$      6,394	$    45,727	$    51,933	$    85,625
Project D	$                           (400,000)	$      4,161	$    37,824	$    45,618	$    74,269	$ 189,812	$    25,577	$ 182,907	$ 207,733	$ 342,499
Project E	$                             (17,000)	$    16,000	$    16,000	$ (16,000)	$    16,000	$ (52,000)
Project F	$                               (5,000)	$      2,000	$      2,000	$      2,000	$      2,000	$      2,000
Project G	$                               (5,000)	$             -	$             -	$             -	$             -	$    15,000
Project H	$                             (20,000)	$      7,000	$      7,000	$      7,000	$      7,000	$      7,000

Answer the question below
contains a list of available investment projects and their respective cash flows. Using a cost of capital of 10%,

1. Find the payback period, net present value and internal rate of return for each project.
2. Based on the results, identify conflicts in ranking the above projects based on the IRR and NPV approaches, i.e. a project that has a higher rank using IRR but a lower rank using NPV and vice versa. You should also provide a discussion of what caused the conflict
3. Provide a discussion of the advantages and disadvantages of all the capital budgeting techniques covered in this course, and identify methods to overcome the disadvantages (if available)
4. Provide a brief discussion (a small paragraph) of the practicality (uses in real life) of the different capital budgeting methods.

Answer 1

Advantages of Capital Budgeting

Considering the various risk and return factors it helps in deciding the projects which are more beneficial for the company.

Capital Budgeting decisions effect afirm for alonger period of time these decisions influence the growth and direction of the firm.

Disadvantages of Capital Budgeting are

It takes into account various non monetary factors like depreciation etc.

As it includes future decisions it includes complex process which makes it difficult to pedict.

We use capital budgeting techniques in our daily life as well for ex whenever we purchase a shoe we always compare its comforts with it's price and purchase it only when it is in our bugets and cost is either equal to the benefits or minimum equal to the price.

There are different rankings of the projects based on IRR AND NPV because each of the project carries different level of return in different period of time as well as the risk factors are different so they will be affected by the same