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Question 2 If a capital investment proposal meets the net present value and internal rate of...

Question 2

If a capital investment proposal meets the net present value and internal rate of return standard, what does management analyze next?

Question 3

Assume that a manager is reviewing a rejected capital investment proposal and the qualitative considerations that the company should include. If the qualitative considerations do change the decision, what should management do next?

Question 4

After accepting a number of proposals, what is the next step that management should consider and perform an analysis of?

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Answer #1

2. After doing the NPV and IRR analysis, if the project is selected then the management should do the analysis of the company's budget i.e. whether the company has required budget to take the project or not. Also, it should do the sensitivity analysis, whether the projected NPV and IRR are highly sensitive to inputs or not.

3.If the qualitative consideration change the decision of the project, first it should be analysed whether the combination of both the qualitative and quantitative results lead to selection of the project or not. If not, then whether the management want to take a hit on the quantitative parameters for qualitative parameters. After doing an analysis involving both the qualitative and quantitative parameters, decision should be taken.

4. After accepting a number of proposals, the management should prioritise the projects based on the incremental profits by the projects and also based upon the cash or budget available with the company.

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