Calculation of internal rate of return, Financial Accounting

Assignment Help:

Q. Calculation of internal rate of return?

The company is accurate in its belief that NPV measures the potential increase in company value of an investment project since theoretically the stock market value of a company increases by the total NPV of projects undertaken. This is accurate as long as the capital market is capable and information about new investment projects is made available to it.

It is probable that a high IRR offers a margin of safety for risky projects and it is able to be interpreted in this way. Nevertheless calculation of IRR is not a substitute for an assessment of project risk. Nespa's decision rule meant for ROCE is flawed in that if used continually it could eventually run out of investment projects that meet its hurdle rate its existing before-tax ROCE. This hurdle rate could enhance with each successive project accepted causing the company to reject projects that would have been acceptable in a previous period. But it is important to recognise that not all costs associated with the capital budgeting process are included in investment appraisal and that such costs will reduce the existing ROCE. The sunk cost of Nespa's market research is one example as well as another would be infrastructure costs that increase on a stepped basis as a result of cumulative project investment. The subsistence of such costs offers a partial justification for Nespa's ROCE decision rule.


Related Discussions:- Calculation of internal rate of return

Divisible property-bankruptcy, DIVISIBLE PROPERTY The property of the ban...

DIVISIBLE PROPERTY The property of the bankrupt divisible among creditors includes: Property belonging to the bankrupt at the commencement of the bankruptcy; Property ac

Various types of accounting changes can affect the financial, Various types...

Various types of accounting changes can affect the financial statements of a business enterprise differently. Assume that the following list describes changes that have a material

Consolidated income statement and consolidated statement , CONSOLIDATED INC...

CONSOLIDATED INCOME STATEMENT AND CONSOLIDATED STATEMENT OF CHANGES IN EQUITY     The consolidated income statement follows similar principles as those of the consolidated balanc

Calculate operating cash flow , Question 1 The following information s...

Question 1 The following information should be used for questions #1 through #7: Jersies, Inc financial statement data.   2009 2010

Potential sources of finance for very new businesses, Potential sources of ...

Potential sources of finance for very new businesses Initial owner finance is almost always the first source of finance for a business, whether from the owner or from family co

Illustrations of accounting policies-financial statement, Illustrations of ...

Illustrations of Accounting Policies A Ltd., has decided to change its policy of writing off borrowing costs to capitalizing the same. As at 31st December, 2003, the company had

Deferred tax assets and deferred tax liability, Below are excerpts from Saf...

Below are excerpts from Safeway's 2010 Annual Report, including its Consolidated Balance Sheets, a portion of Note E, Lease Obligations, and Note H, Taxes on Income, from the Notes

Calculated market capitalization, What have been the dividends per share? ...

What have been the dividends per share? What is the CAGR of dividends per share from 2008 to 2010? What was the retention ratio for 2008 to 2010? Calculate the DPS growth

Accounts relate to keenal real estate, Prepare a financial statement from a...

Prepare a financial statement from alphabetic listing of accounts: A number of accounts balances are listed below these accounts relate to Keenal Real Estate. During the year just

Indian company, content of financial statement with refrence to indian comp...

content of financial statement with refrence to indian company

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd