Finance Module: NPV Valuation and Investment Analysis Assignment

This assignment solution addresses a Net Present Value (NPV) valuation exercise. It calculates the NPV of a project with given revenues, costs, and interest rates, determining its financial viability. The solution outlines an investment strategy to replicate the project's cash flows, calculates the required investment amount, and compares the project's initial cost with the investment strategy's cost. The document interprets the NPV results, comparing investment in the project versus the financial market, and discusses the implications for investment decisions. The assignment includes answers to specific questions regarding investment strategies, cost differences, and the meaning of NPV, supported by references.

Running head: NPV VALUATION
NPV VALUATION
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1NPV VALUATION
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
In Response to Question 1......................................................................................................2
In Response to Question 2......................................................................................................2
In Response to Question 3......................................................................................................3
In Response to Question 4......................................................................................................3
Conclusion..................................................................................................................................3
References..................................................................................................................................4

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Introduction
The aim of the assignment to evaluate an investment project by the proves of
calculating Net present value of the project. This is the tool which is used in order to
understand the viability of the project and accordingly the upper level management of the
organization takes decisions accordingly.
Discussion
In Response to Question 1
In Response to Question 2
a. The investment strategy which must be adopted in this case is to make investments
which has higher return with minimum risk involved in it. Ion order to maintain the
same kind of cash flow in the business for the respective years (Arcand, Berkes and
Panizza 2015). The working capital of the firm must be effective in order to make
further effective in the business so that the company is effective in maintain the
current net cash flow in the business.
b.

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It is needed to make an investment of about $200000 in order to achieve a positive net
present value in the business. This will also help the business of the concern to maintain the
constant flow of cash in the business for the period of three years. As per the evaluation, the
company will accept positive flow of cash flow in the business (Cuthbert and Magni 2016).
In Response to Question 3
The difference in the cost of investment between the two project is $ (275000-
200000) = 75000 where the initial cost of investment in the main project $ 275000 and the
assumed investment is about $200000. In case of the initial investment the project was
showing a negative net present value but on the other hand the assumed project is generating
positive net present value which indicates that the company will accept the project (Arjunan
2017).
In Response to Question 4
The initial investment of the company is based on the certain plan and strategies of
the upper level management of the organization. In that case the actual investment of the
company is actually generating negative net present value which further suggest that
accepting the project is a total loss for the firm (Ben-Horin and Kroll 2017). This will take
another year for the company to generating positive return in the business. If the amount of
investment is the assumed amount then it will be the right decision for the company to accept
the project due to the positive net present value of that project.
Conclusion
From the above discussion it can be said that the evaluating the net present value
helps to understand the sound viability of the project in terms of long term or short-term
investment in any kind of project. In such a situation it is significant to maintain positive flow
of working capital in the business.

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References
Arcand, J.L., Berkes, E. and Panizza, U., 2015. Too much finance?. Journal of Economic
Growth, 20(2), pp.105-148.
Arjunan, K., 2017. IRR Performs Better than NPV: A Critical Analysis of Cases of Multiple
IRR and Mutually Exclusive and Independent Investments. Revised and updated version as
of, 23.
Ben-Horin, M. and Kroll, Y., 2017. A simple intuitive NPV-IRR consistent ranking. The
Quarterly Review of Economics and Finance, 66, pp.108-114.
Cuthbert, J.R. and Magni, C.A., 2016. Measuring the inadequacy of IRR in PFI schemes
using profitability index and AIRR. International Journal of Production Economics, 179,
pp.130-140.