A.) The textbook seems to favor two techniques for two differentreasons Net present value seems to be the most widely usedtechnique because of its ability to predict the expected dollaramount of wealth that a project should produce. The other widelyused technique is the internal rate of return. Both of thesetechniques can be used to make accept or reject decisions andsometimes IRR is used because of its focus on percentage rates ofreturn as it pertains to the cost of capital of the firm. This wayan analyst can identify any problems with the IRR before theirbosses can implement the project. I am fairly new to this but cansee why a combination of these two techniques could be very usefulto decision makers especially IRR which can show if investmentreturns can exceed a companyâs requirements. Personally my interestis in small business and I enjoyed learning about the paybackperiod. Baby steps.
What are your thoughts regarding this feedback? Pleaseexplain!!!!
B.)The textbook favors the net present valueinvestment valuation technique. The reasoning is that it goes intodeeper detail about the financial standing of a company, than othervaluation methods. It subtracts the value of the initial investmentfrom the firm's cash flows at a rate comparable to the firm's costof capital, as a percentage. It demonstrates more than just thefact that a company can pay back their debts, but whether a companyis profitable or not. An investment firm would be most interestedin an investment that has a greater cash flow than that of theinitial investment. It may seem obvious that someone would want toinvest in a company that makes money, but our textbook has alsoshown us that investments do not always make money at the samepace. For example an investment could break even the first year,but then have accelerated growth year 2 and 3, or vice versa. Thisis a reason why, to me, NPV is a good way to value an investment.It leaves room for this information if you calculate the yearsseparately (unlike you would an annuity).
What are your thoughts regarding this feedback? Pleaseexplain!!!!
A.) The textbook seems to favor two techniques for two differentreasons Net present value seems to be the most widely usedtechnique because of its ability to predict the expected dollaramount of wealth that a project should produce. The other widelyused technique is the internal rate of return. Both of thesetechniques can be used to make accept or reject decisions andsometimes IRR is used because of its focus on percentage rates ofreturn as it pertains to the cost of capital of the firm. This wayan analyst can identify any problems with the IRR before theirbosses can implement the project. I am fairly new to this but cansee why a combination of these two techniques could be very usefulto decision makers especially IRR which can show if investmentreturns can exceed a companyâs requirements. Personally my interestis in small business and I enjoyed learning about the paybackperiod. Baby steps.
What are your thoughts regarding this feedback? Pleaseexplain!!!!
B.)The textbook favors the net present valueinvestment valuation technique. The reasoning is that it goes intodeeper detail about the financial standing of a company, than othervaluation methods. It subtracts the value of the initial investmentfrom the firm's cash flows at a rate comparable to the firm's costof capital, as a percentage. It demonstrates more than just thefact that a company can pay back their debts, but whether a companyis profitable or not. An investment firm would be most interestedin an investment that has a greater cash flow than that of theinitial investment. It may seem obvious that someone would want toinvest in a company that makes money, but our textbook has alsoshown us that investments do not always make money at the samepace. For example an investment could break even the first year,but then have accelerated growth year 2 and 3, or vice versa. Thisis a reason why, to me, NPV is a good way to value an investment.It leaves room for this information if you calculate the yearsseparately (unlike you would an annuity).
What are your thoughts regarding this feedback? Pleaseexplain!!!!
