Capital Budgeting: Applications of Investment Decision Techniques - Finance Assignment Help

Assignment Task

The case has four primary learning objectives:

1. Explain the mechanisms of capital investment decisions.

2. Identify the appropriate investment decision techniques suiting the characteristics of the projects.

3. Apply the capital investment decision techniques on seven projects with different cash outlays.

4. Demonstrate the ability to evaluate the various capital investment projects and make decisions based on their merits, and availability of funds (capital rationing)

Task

After reviewing the appropriate readings and learning materials, please answer the given questions of the selected case study:

1. Rank the projects simply by inspecting the cash flows (you must calculate the sum of cash-flow benefits and the excess of cash inflows over cash outflows).

2. Rank the projects using two quantitative methods: NPV and IRR. Assume that all projects are from the same risk class and the appropriate discount rate is 9%. Briefly explain the two methods and specify which quantitative ranking methods are better, and why.

3. Compare the ranking obtained by the two methods with the ranking obtained by simple inspection of the cash flows. Do they differ? Explain the reasons why they differ or not.

4. Recommend the ‘best projects’ that the firm should accept when the funds available are limited to AED 65 million, and Project 4 and Project 5 are mutually exclusive.

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