BUS 420 Study Guide - Midterm Guide: Opportunity Cost, Agency Cost, Sunk Costs
20 Jul 2020
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Independent projects if the cash flows of one are unaffected by the acceptance of the other mutually exclusive projects if the cash flows of one can be adversely impacted by the acceptance of the other. This is net gain in wealth, so accept project if npv > 0. Choose between mutually exclusive projects on basis of higher npv. (i. e. the project that adds the most value) Irr is the discount rate that forces pv inflows = cost. Same as forcing npv = 0. (add from notes) To find irr is cfs are constant. If irr > wacc, then the project"s rate of return is greater than its cost-- some return is left over to boost stockholders" returns. So this project adds extra return to shareholders. If an independent project with conventional, or normal cash flows is being analyzed, the. If the wacc for each project is 18% the npv and irr methods agree.
