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* From the e-Activity, analyze the reasons why the short-term project that you have chosen might be ranked higher under the NPV criterion if the cost of capital is high, while the long-term project might be deemed better if the cost of capital is low. Determine whether or not changes in the cost of capital could ever cause a change in the internal rate of return (IRR) ranking of two (2).
To examine the profitability of project, NPV is often used in preparing a budget for the costs of capital. It is quite challenging (at least for me) to determine the profitability of a project because there are several ways to measure the future value of cash flows. In the case of the e-Activity, short-term project may be ranked higher than the long-term project because of the high cost of capital.
Since of the time value of money states that a dollar’s future worth may differ from what it is today, it may be more favorable to work on a short-term project. Changes in the cost for capital will directly affect the IRR, whether positively or negatively. The high cost of capital is the reason for the short-term project, since the project would be able to take better advantage of the discount rate. As the NPV formula suggests, the higher the capital, the more ideal it is for success. * From the scenario, take a position for or against TFC’s decision to expand to the West Coast. Provide a rationale for your response in which you cite at least two (2) capital budgeting techniques (e.g., NPV, IRR, Payback Period, etc.) that you used to arrive at your decision.
I think the NPV and IRR techniques can be used to determine if TFC’s decision to expand is a good choice. The WACC is 10.92%. Please see the following table for the anticipated cash flows: Year | Cash Flow (in Millions) | 0 | -750 | 1 | -10 | 2 | 200 | 3 | 250 | 4 | 300 | 5 | 400 |
According to this info, the

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