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Capital Budgeting: Cash Flow Estimation and Risk Analysis - Assignment Example
Author : harbergene
Pages 6 (1506 words)
The following report presents the investment appraisal of new expansion plan of the company Target. For the purpose of initial evaluation, the NPV and IRR technique has been utilized. Investment appraisal through NPV method and IRR method are both very useful in order to financially attractive prospective of any investment decision…
NPV method has certain drawbacks and limitations. Different projects must be assessed at different discount rates because the risk for each project is generally different. The reliability of the NPV based investment appraisal can be as reliable as the discount rate itself. However, in practice, it is very unrealistic to determine different discount rate for different investment proposals. Whereas, IRR uses a single discount rate to evaluate every investment, due to which it is used extensively among the financial analysts. ...