Project C with IRR = 9 %. All other details in the Q are extraneous.
While Project Selection, consideration is given in the below order..
1. NPV (Most Precise) - Years, Discount rate, everything considered within. So if NPV is given, it should be considered for project selection with highest positive value.
2. IRR (Next to NPV) - Highest % considered. It is the discount rate when NPV = 0
3. Payback period (Least Precise) - Lowest # of years considered. It is least precise becoz it does not consider the time value of money (after that specific period, returns may also be so high).
IRR is calculated over the entire payback time and gives an "absolute" number: the highest IRR is the best. Unless there is another condition stating that you want to get revenue asap, then the project with the highest IRR should be chosen, imho.
If they explicitly had stated that the economy was going to be bad, then maybe A would have been the best choice, but it is only stated that the hotel business is dependent on the economy, which is simply an universal truth.
rwmv
Tue, 05/21/2013 - 10:00
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answer-A
Answer- A - PROJECT A. bcoz lowest the pay back period the better.
vijayavadrevu
Tue, 05/21/2013 - 10:05
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If Payback period and IRR
If Payback period and IRR are given, which parameter need to be given preference while selecting a project? IRR or Payback Period?
sanskrit
Tue, 05/21/2013 - 12:25
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Tricky C May be
Tricky C May be, I am not sure, what exactly it means by "hotel industry is directly affected by economy"
vijayavadrevu
Tue, 05/21/2013 - 15:16
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Otherwise, If Payback
Otherwise,
If Payback period
IRR both are given,
then should project be selected basd on lowest payback period or highest IRR?
Please clarify
rjbuzzing
Thu, 05/23/2013 - 02:37
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Not sure, but maybe IRR
Not sure, but maybe IRR should be given preference ? What say folks !
Geethika
Thu, 05/23/2013 - 08:00
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Project C
Project C with IRR = 9 %. All other details in the Q are extraneous.
While Project Selection, consideration is given in the below order..
1. NPV (Most Precise) - Years, Discount rate, everything considered within. So if NPV is given, it should be considered for project selection with highest positive value.
2. IRR (Next to NPV) - Highest % considered. It is the discount rate when NPV = 0
3. Payback period (Least Precise) - Lowest # of years considered. It is least precise becoz it does not consider the time value of money (after that specific period, returns may also be so high).
sanskrit
Thu, 05/23/2013 - 12:59
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Nice clarification
Nice clarification
vijayavadrevu
Fri, 05/24/2013 - 06:58
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Thank You Geethika for the
Thank You Geethika for the very good clarification
Regards
Vijaya
jvleminc
Wed, 05/29/2013 - 15:39
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C
IRR is calculated over the entire payback time and gives an "absolute" number: the highest IRR is the best. Unless there is another condition stating that you want to get revenue asap, then the project with the highest IRR should be chosen, imho.
VP Srinivas
Wed, 05/29/2013 - 18:40
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A,since economy state is
A,
since economy state is uncertain, its best to realise the returns in shortest possible time.
IRR depends significantly on the prevailing market lending rates and bank Repo rates and reverse repo rates
jvleminc
Thu, 05/30/2013 - 00:09
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If they explicitly had stated
If they explicitly had stated that the economy was going to be bad, then maybe A would have been the best choice, but it is only stated that the hotel business is dependent on the economy, which is simply an universal truth.
cnppmp
Thu, 05/30/2013 - 08:15
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Between Payback and IRR go for highest IRR
Between Payback and IRR go for highest IRR, so it is C option
Regards
CN Patil