PPT 9

Question 1

Financial Feasibility

Answer 1

Main concern of entrepreneurs in project evaluation.
Justification for the proposed investment and financial prospects assessment.

Question 2

Discounted Cash Flow Techniques

Answer 2

Assessing expected returns using Net Present Value (NPV) and Internal Rate of Return (IRR).

Question 3

Conventional Investment Cash Flow

Answer 3

Starts with one cash outflow (investment period) followed by positive cash flows over time.

Question 4

Non-Conventional Investment Cash Flow

Answer 4

Cash outflows happen at various periods, and investors may not always redeem investments on demand.

Question 5

Net Present Value (NPV)

Answer 5

he value of all future cash flows (positive and negative) over time.
Takes into account the time value of money and future revenues and outlays.

Question 6

NPV Formula

Answer 6

NPV = ∑ (Pt / (1+r)^t) - C0
Where:
Pt: Revenue inflows in period t.
r: Rate of return.
C0: Cash outflow in the base period.

Question 7

NPV and Decision-Making

Answer 7

NPV provides a realistic picture of future investment.
Useful for decision-making, but hard to compare projects of different sizes.

Question 8

Internal Rate of Return (IRR)

Answer 8

The rate that reduces NPV to zero.
It equates the discounted benefits with the discounted costs and is used to estimate investment profitability.

Question 9

IRR Formula

Answer 9

0 = ∑ (Pt / (1+IRR)^t) - C0
Where:
Pt: Cash inflows in period t.
IRR: Internal Rate of Return.
C0: Initial investment (cash outflow).

Question 10

IRR vs. Required Rate of Return (RRR)

Answer 10

If IRR > RRR, the entrepreneur can invest.
If IRR < RRR, the project may be rejected.