EST 414 Theory Questions: Comparative Analysis of NPV and IRR Techniques for Project Appraisal

400 Level Estate Management And Valuation Department exam questions and detailed answers. Download the answers in document format. Correct, detailed, and straightforward answers.

Questions:

(a) Compare the project ranking techniques of the Net Present Value (NPV) and the Internal Rate of Return (IRR) as modern appraisal methods.

(b) An investor has been presented with two mutually exclusive projects A and B having the following investment cashflows:

| Year | Project A N(000) | Project B N(000) |
|——|——————|——————|
| 0 | 14,000 | 8,000 |
| 1 | 7,000 | 6,000 |
| 2 | 5,000 | 3,000 |
| 3 | 4,000 | 800 |
| 4 | 2,000 | 500 |

The investor’s target rate is 13 per cent.

(i) Explain the mutual exclusivity of the two projects
(ii) Calculate the NPV of the two projects and rank them
(iii) Calculate the IRR of the two projects and rank them
(iv) Based on the rankings, which of the projects will you advise the investor to invest in?

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