Question

Quick short answers. briefly explain reasoning.

*Making decisions using IRR and payback analysis.

*How to evaluate multiple alternatives with multiple futures?

*What are cash flow diagrams?

*What is break even analysis? How to make decisions using break even analysis?

*What are control charts? What are the different types? Which type of chart to use (depending on the characteristics)?

Answer 1

1) Making decisions using IRR and payback analysis

IRR is the internal rate of return which tells whether a project reaches breakeven point or not. Let's say, if there is an investor who wants to invest in a project, then he checks how good or healthy will be the internal rate of return for the project. Stronger the project, or more attractive the project is, the IRR will be good and achievable. The internal rate of return helps in determining how much return an investor can expect to realize from any particular project. This occurs when a project attains break even, or when the net present value equals to 0. Here, the decision rule is simple - always choose the project where the IRR is higher than the cost of financing the project.

Payback analysis is used to analyse the term of the project. Like for example, short term projects could be say five years. In this analysis, we will basically determining how long does it take to pay back the initial investment that is required to undergo a project. In payback analysis, we analyze how long would it take for the total project to be completed and the cost of the project. Based on the payback period, we analyze how much cash inflow can be expected to be received each year.

2) Cash flow diagrams - These are the diagrams that can be visually depicted with the timing of the cash flows as well as their nature as either inflows or outflows. Cash flow diagrams represents income and expenses over a particular time interval.

3) Breakeven analysis is a point where revenues will be greater than the costs. It is a point from where the profits begin. The break-even point identifies the total amount of sales the business needs before profit can be earned.