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Finance- Assignment sample

# Finance- Assignment sample

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determination of financial stability of a project using net present value, internal rate of return and profitability index.
determination of financial stability of a project using net present value, internal rate of return and profitability index.

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07/07/2013

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Coursework AssignmentStrategic Financial ManagementFIRMEX Corporation (PLC):
The data shown in the above table are for two mutuallyexclusive project opportunities that a company called FIRMEX isconsidering undertaking.Both projects are assumed to be strategically important to thecompany.Assume further the company’s cost of capital is 10 per cent.1. Calculate the NPV of both projects.2. Calculate the Profitability Index for both projects.3. Calculate the IRR for both projectsWhich project should FIRMEX investment in?
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INDEXCONTENTPAGE NUMBER
INTRODUCTION2NET PRESENT VALUE3INTERNAL RATE OF RETURN5PROFITABILITY INDEX7CONCLUSION8REFERENCES9
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INTRODUCTION
Investment appraisal is very vital in everybusiness. There are different types of investment appraisalmethods such as Accounting rate of return (ARR), Paybackperiod (PP), Net present value (NPV), Internal rate of return(IRR), and Profitability index (PI). Time is a very essential feature of investmentdecisions. ARR and PP do not take into consideration the timevalue of money, and do not give an indication of the amount of capital investment required. The remaining three methods(NPV, IRR, PI) considers the time value of money and are calledthe Discounted cash flow techniques. It measures the cashinflows and outflows of a project as if they occurred at a singlepoint in time so that they can be compared in an appropriateway. These are the best methods to use for long-run decisions.Since, IRR and NPV incorporate all the cash flows and timevalue of money, these criteria can be used to reflect capitalinvestment proposal’s strategic orientation.In the given case, FIRMEX Corporation isconsidering undertaking two projects. The two projects will beevaluated using the discounted cash flow methods to decideon, which project is to be selected.
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