- #1
martine
- 27
- 1
Hello,
I've had an intro economics course recently and there are still a couple of questions unanswered.
One of the examples given where a handfull of projects with an initial investment and positive cash flows the following years. The question was which project is preferable when looking at IRR, NPV and a couple of other tools.
It was decided that the first two methods where most important and that project A and C looked most promising. Both had the same initial investment.
A: high first cashflow, moderate cashflow for a few years, then none anymore
C: low but stable cashflow throughout into the future
A: IRR ~13% NPV ~18
C: IRR ~10% NPV ~23
I only wrote down a few advantages and disadvantages for both methods and the remark that project A is preferable to C. The question is why? The IRR I learned cannot be used for ranking across projects and the NPV is lower. Maybe because the initial investment is paid back quicker or are there other arguments for that? I know I should have asked the lecturer, but he was speeding so quickly through his slides that I just tried to keep up with taking notes and id not really think about what he was saying.
Thanks a lot for any hints.
M.
I've had an intro economics course recently and there are still a couple of questions unanswered.
One of the examples given where a handfull of projects with an initial investment and positive cash flows the following years. The question was which project is preferable when looking at IRR, NPV and a couple of other tools.
It was decided that the first two methods where most important and that project A and C looked most promising. Both had the same initial investment.
A: high first cashflow, moderate cashflow for a few years, then none anymore
C: low but stable cashflow throughout into the future
A: IRR ~13% NPV ~18
C: IRR ~10% NPV ~23
I only wrote down a few advantages and disadvantages for both methods and the remark that project A is preferable to C. The question is why? The IRR I learned cannot be used for ranking across projects and the NPV is lower. Maybe because the initial investment is paid back quicker or are there other arguments for that? I know I should have asked the lecturer, but he was speeding so quickly through his slides that I just tried to keep up with taking notes and id not really think about what he was saying.
Thanks a lot for any hints.
M.