Business Finance: NPV, IRR and Capital Investment Decisions

This assignment focuses on capital investment decisions, specifically using Net Present Value (NPV) and Internal Rate of Return (IRR) for project appraisal. It explains that NPV compares the initial investment with the present value of expected cash flows, favoring projects with the highest NPV. IRR is defined as the rate that equates the present value of expected cash flows with the initial investment, with higher IRR indicating better feasibility. The assignment applies these concepts to a case study, computing IRR and NPV to determine the optimal location for a new franchise, concluding that Westfield Parramatta is the best choice due to its superior NPV and IRR.

Running head: BUSINESS FINANCE
Business Finance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1BUSINESS FINANCE
Table of Contents
Answer to question 1:........................................................................................................2
Answer to question 2:........................................................................................................2
Answer to question 3:........................................................................................................2
Answer to question 4:........................................................................................................3
References:........................................................................................................................4

2BUSINESS FINANCE
Answer to question 1:
Answer to question 2:
Answer to question 3:

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Answer to question 4:
There are various project appraisal techniques, which are used to take any
investment decisions among various alternative investment opportunities. Net present
value (NPV) and Internal rate of return (IRR) are widely used for project appraisal. NPV
compares the initial investment and the present value of all the expected cash flows
from a project (Rossi 2015). A project with highest NPV is considered to be more
feasible. IRR is that expected rate which equates the Present value of expected cash
flows with the initial investment. Greater the IRR better the project feasibility (Patrick
and French 2016).
For the given case study IRR and NPV is being computes as under to take a
rational decision.
Based on above analysis, it could be concluded that Westfield Parramatta would
be the optimal location for the new THE COFEE CLUB franchise, as the NPV and IRR
both are greater for that place.

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References:
Patrick, M. and French, N., 2016. The internal rate of return (IRR): projections,
benchmarks and pitfalls. Journal of Property Investment & Finance, 34(6), pp.664-669.
Rossi, M., 2015. The use of capital budgeting techniques: an outlook from
Italy. International Journal of Management Practice, 8(1), pp.43-56.