NPV and IRR are two DCF methods for analysing a proposed capital investment. Briefly explain how each method can be used to make capital investment decisions. Discuss the strengths and weaknesses of each.
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NPV and IRR are two DCF methods for analysing a proposed capital investment. Briefly explain how each method can be used to make capital investment decisions. Discuss the strengths and weaknesses of each.
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- Please compare and contrast several of the different tools that can be used to evaluate potential capital investments (e.g. NVP, IRR, payback period, ARR, etc.).Define the following terms, using graphs or equations to illustrate youranswers wherever feasible: c. Capital Asset Pricing Model (CAPM); Capital Market Line (CML)Explain how a net present value (NPV) profile is used to compare capital projects. How does this profile compare to that of internal rate of return (IRR)? How does reinvestment affect both NPV and IRR? Support your rationale with at least one citation from the literature.
- Discuss the main features of Capital Asset Pricing Model (CAPM) and comment on the validity of the model in the real world.Discuss the advantages and disadvantages of using the Internal Rate of Return method for analyzing capital investment projects.Understand the strategic role of capital investment analysis.
- Apply the procedure to find the true IRR, or return on invested capital, of the mixed investment?The Capital Asset Pricing Model (CAPM). Write the financial model assumptions, equations, descriptions and financial meaning of each parameters and / or variables, and critique of the model and any idea to improve the modelExplain what is meant by Accounting Rate of Return (ARR) and Net Present Value (NPV) in the context of investment appraisal. Discuss at least TWO advantages and TWO disadvantages of each method.
- Explain briefly what working capital and working capital management are and what they do. Explain the link between current asset policy and liquidity, profit, and risk as well as any other relevant factors. So, which policy do you believe to be the most beneficial?Discuss two limitations of using the weighted average cost of capital when making investment decisions.EXPLAIN EACH WITH EXAMPLE 1. EVALUATING CAPITAL INVESTMENT PROJECTS 2. CAPITAL INVESTMENT FACTORS 3.NET INVESTMENT 4.NET RETURNS