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The investment detective case solution,the investment detective case analysis, the investment detective case study solution, this case represents the evaluation and comparison of capital investments, as students evaluate streams eight projects' cash flows and evaluate them in ter. Ranking by looking at the excess of cash flow, the preferable investment would be project 3 and by payback period, the preferable investment would be project 6 however, by using these methods we simply neglecting the time values of money and the companies’ cost of capital.
Profit equals return on investment cost of borrowing if the wacc is 10% or higher, firm should make more than 10% as return on investment looking at the cash flows only gives an idea of how much excess of cash flow over initial investment is made. Project free cash flows (dollars in thousands) project number: 1 2 3 4 5 6 7 8.
The investment detective 1 we can not rank the projects by only simple inspection of the cash flows because of the time value of money and cost of capital of companies we use capital budgeting tools to measure financial performance of projects the major available tools are irr, mirr and npv.
An investment project will be acceptable if irr is greater than or equal to the required rate of return for that project the higher the irr, the better present value index known as “profitability index.