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Caselet For Section

The document discusses two projects with identical initial investments of Rs 6,00,000 but different expected cash flows over time. Project A's cash flows drop over time while Project B's rise. The firm needs a 10% return and is trying to decide which project is more feasible based on NPV, IRR and MIRR calculations, but the results provide conflicting rankings.

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32 views

Caselet For Section

The document discusses two projects with identical initial investments of Rs 6,00,000 but different expected cash flows over time. Project A's cash flows drop over time while Project B's rise. The firm needs a 10% return and is trying to decide which project is more feasible based on NPV, IRR and MIRR calculations, but the results provide conflicting rankings.

Uploaded by

Medha Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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FM Group Discussion for Mid-Term Exam – Caselet for Section I

Shankar Jaikishan Enterprises is in the Groceries business and is considering two projects with identical
initial investments of Rs 6,00,000, but different expected future cash flows. As the table below shows,
the expected cash flows for Project A drop over time, but rise for Project B. The firm requires a 10%
return on its investments and is trying to decide on the feasibility of investing in these two projects.

Year Project A Rank Project B Rank


0 -6,00,000 -6,00,000
1 4,20,000 1,20,000
2 3,60,000 3,00,000
3 1,20,000 6,00,000
NPV @ 10% ₹ 1,54,087.84 2 ₹ 1,88,921.52 1
IRR 29% 1 25% 2
MIRR @ 10% Reinvestment Rate 20% 2 21% 1

Advise the company in view of the conflicting results (rankings) provided by different approaches.

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