FUNDAMENTALS OF FINANCE Essay Example | Topics and Well Written Essays - 2000 words

FUNDAMENTALS OF FINANCE - Essay spokespersonSo, going by the NPV chemical formula shows B and C are the ones that SKATE plc should consider investing in. However, since design C is expected to generate much greater present value for the firm, it is the one that should be invested in if the firm is under the obligation to choose simply one from the given set of three alternatives.The IRR rule says invest in a nominate only if the IRR is greater than the required rate of return. So in the given situation we have to train the IRRs for the three vomit ups and compare those to the given required rate of return, 15%.So we find that the IRR to be lesser than the required rate of return in case of project A and greater for project B and C implying that only these latter two should be considered for investment. And the position that the IRR is so high in case of project C implies that it is the project that should be chosen if only one has to be chosen. So we find similar results and suggestions for both the NPV and the IRR criteria.The discounted payback rule is another cadence for investment projects. Essentially this measure discounts the future cash flows obtainable from a certain project to calculate the time the project takes to payback the initial investment and hence the name. If for instance, X is the amount that needs to be initially invested, this rule solves for that value of T which satisfies the equationWhere Ct represents the cash flow at time t and r is the discount rate representing the time value of money. If the value of T is lower than somewhat predetermined time period, the project should be accepted according to this rule.So, with the cut off period organism one year, project B should be accepted according to the discounted payback rule as the project generates cash flows the discounted values of which are greater than the initial investment in the first period itself.Similarly, for project C, we get C1/ (1.15) = 78.2609 50 = C0 implyi ng that this project also pays back he invested