boken kap 6 del 4

Question 1

Q8: What is the formula for the Modified Internal Rate of Return (MIRR)?

Answer 1

MIRR=n√(terminal cash flow)/(initial investment)) -1

Question 2

Q9: When should MIRR be used instead of IRR?

Answer 2

Use MIRR when the reinvestment rate differs from the IRR. When reinvestments are made in other projects rather than the same project it will have another rate.

Question 3

Q11: What are criticisms of the margin of safety method?

Answer 3

1. Adjusts for risk twice.
2. Recommendations depend heavily on estimates.
3. The target percentage is subjective and chosen arbitrarily.

Question 3

Q10: What is the margin of safety in investment appraisal?

Answer 3

An addition to NPV. You only accept if PV is a certain percentage above the asking Price or initial investment.

Question 4

Q12: What is Net Present Social Value (NPSV)?

Answer 4

NPSV considers the social benefits and costs of a project. A positive NPSV indicates a positive societal impact.

Question 5

What do you need to do to calculate NPSV?:

Answer 5

1. Quantify and value social benefits and costs.
2. Discount them to present value.

Question 6

Q13: Why combine NPSV with NPV?

Answer 6

To ensure that a project has both positive societal impact (NPSV) and positive financial value (NPV).

Question 7

What do you need to apply NPV or IRR?

Answer 7

The discount rate. You can compute IRR without it but you can’t apply it.

Question 8

What methods do companies use in the real world?

Answer 8

Most companies use combinations of methods but NPV or IRR is most frequently used.