1. Assignment Part A
Prepare the case, with recommendations to be presented to the Board of Directors of ProGen. Assess the viability of the project using the NPV, IRR, and Payback methods.
2. Assignment Part B
“The IRR rule is redundant as an investment criterion because the NPV rule always dominates. Discuss this statement giving examples where possible.
“The IRR rule is redundant as an investment criterion because the net present value (NPV) rule always dominates it.”
Assignment Part A
This report evaluates the viability for marketing and distribution of genetically …show more content…
IRR of 15% discount rate gives a net nil of discounted cash flow
IRR - Is a measure of the profitability of a project but not a true measure of the return of a T period project. An IRR of 15% does not mean that this will generate an annual return of 15%. IRR of 15% is the equivalent to the discount rate, which gives an NPV of zero.
If IRR is greater than cost of capital it adds shareholder value.
Project Investment Recommendations
The evaluation methods used (NPV, IRR and Payback) conclude that
This investment project could be viable and should be considered by the firm providing the
Firm can support a 5-year payback rule. This investment would require provisions to support the negative cash flow present in the first 3 years.
If this is acceptable then