投资项目效益评价.ppt75

Advanced Topics in Capital Budgeting
II. Conflicts between NPV and IRR for Mutually Exclusive Projects
 1. Size Effect of Investment Outlay on NPV and IRR
 (1) Conflict——Which Maximizes Shareholder’s Wealth?
         Suppose that there are two projects, A and B, n=1, K=10%, their investment outlays and NCF are presented in the following table.
           Project                I0               NCF1          NPV (k=10%)         IRR         PVI
                 A                 5,000            8,000              2,273                  60%         45.46%
                 B                50,000          75,000           18,182                  50%         36.36%
   Both projects are acceptable due to their positive values of NPV, however, given that the two projects are mutually exclusive, which one is preferred?
         Also, because the size of investment outlays for A and B are different. By NPV, A is better than B; by IRR (or PVI) B is over A. This case is typical as a conflict raised from decision criteria by NPV or by IRR?  
厦门大学吴世农
 (2) Solution
           Since K=10% is assumed to be fixed, we can solve this conflict by creating a differential project (B-A), if the differential project yields a positive NPV, it is obvious that B is better than A because not only a part of B will create a NPV equal to  NPVA,  but also create a positive NPV for the differential project (B-A). Thus, we create a differential project (B-A), and then calculate its NPV and IRR
            NPV(B-A) = [(75000-8000)/(1+10%)]-(50000-5000)=$15909
            [(75000-8000)/(1+IRR(B-A) )]=(50000-5000), IRR(B-A) =48.8%
           No doubt, the results above suggests that the investors of the firm will be better off if project B is accepted.

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