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Module 4 Assignment: Executive Summary of Project Analysis: Oghenevwegba Fidelis, Ogbeni

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Module 4 Assignment: Executive Summary of Project Analysis: Oghenevwegba Fidelis, Ogbeni

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Module 4 Assignment: Executive Summary of Project Analysis

Oghenevwegba Fidelis, Ogbeni

Master of Business Administration

Nexford University

BUS6110: Organizational Strategy

Lecturer: Dr. Michael Simms

December, 2024
Executive Summary

The Internal Rate of Return (IRR) is the discount rate capable of generating the Net

Present Value (NPV) of the cash flows of a project to equal zero. This metric is used in decision

making on the ability of the business to finance potential investments. If the IRR is above the

cost of capital or any other investment opportunity it is financially favourable to undertake it.

Based on the given data, after discounting inflation with an initial investment of $300,000

and projected cash flows over a seven-year period years (detailed in the table below), the IRR

was calculated using Excel in-built IRR function (e.g. =IRR(B2:B9)) to be approximately10%.

Year 0 1 2 3 4 5 6 7
-
Cash Flow ($) 300000 25000 50000 35000 120000 130000 25000 110000
Internal Rate of
Return (IRR) 10%

Key Insights

 The IRR shows that the organization can get 10% of the annual return on this investment.

This return is considerably higher compared to the expected 7% return if alternative

securities investment is considered, therefore the project is financially viable.

 From the cash flow analysis, it is evident that while most of the years have a positive cash

flow there is a negative cash flow in the 6th year this might be a result of planned

expense or a low seasonal sale turnover.

Recommendation

The project IRR of 10% is higher than 7% of other securities, making this one more

profitable. However, while analyzing the data of year 6, the investors should pay a particular

attention to the negative cash flow. It recommended to perform sensitivity analysis and test the

project under different sales volume, operating cost, and discount rates. This will make the
impact of variation clearer in identifying the effect on profitability. However, it is necessary to

note several drawbacks of the IRR, for example, the assumption made about the reinvestment of

the cash flows and possibility to get several solutions while changing cash flows. Nevertheless,

all the risks mentioned above are manageable and therefore the project is financially viable and

should be implemented.

References

AllThingsMathematics. (2017, July 3). FIN 300 - Internal Rate of Return (IRR) Overview -

Ryerson University. Www.youtube.com. https://youtu.be/NjJ3Qx3zrus

Fernando, J. (2024, June 24). Internal Rate of Return (IRR): Formula and Examples.

Investopedia. https://www.investopedia.com/terms/i/irr.asp

Microsoft. (2014, May 27). Go with the cash flow: Calculate NPV and IRR in Excel.

Support.microsoft.com. https://support.microsoft.com/en-us/office/go-with-the-cash-

flow-calculate-npv-and-irr-in-excel-9e3d78bb-f1de-4f8e-a20e-b8955851690c

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