It is the job of every financial analyst to make sure solid recommendations are given to the Controller, CFO, or the Board of Directors. Sometimes it can be difficult to know which quantitative analysis to use and why to use a particular one. There are certain times when simply using the sum of the Cash Flows will be sufficient. For example, if you do not want to take into account the time/value of money, or factor in the risk of a project, then you could use the total of the cash flows. Usually the top four quantitative measures in order are: 1) NPV 2) MIRR 3) IRR 4) Profitability Index. For the purpose of this case, I have used those top four in addition to: 5)Payback period and 6) Discounted Payback Period.

For the purpose of this case, the CFO has asked that the “four best” projects be ranked and recommended as to which the company should accept. These top four rankings are reflected with each of the six (6) quantitative ranking calculations below; however, if asked to select just one of the rankings, then NPV would be selected.

That being said, the top four projects in the NPV ranking (assuming a 10% WACC) are: Project 3, Project 4, Project 8, and Project 5. Although Project 7’s NPV is higher than Project 5, it is not listed because it is mutually exclusive with Project 8 and they cannot be ranked together. More of these calculations are outlined and explained in the “Calculations” section below.

1. Can you rank the projects simply by inspecting the cash flows?

a. Absolutely. However, this is not recommended to be the best thing to do. By analyzing just the cash flows, you are not taking into account the time/value of money. A dollar earned today is not worth the same as a dollar earned in the future, 1, 5, or 15 years down the road. If you want to compare cash flows, then you must bring all cash flows to the present. This is done by taking into account the time/value of money....

...Case 17 – The InvestmentDetective
The case of the InvestmentDetective laid out the cash flows for us in each of eight different projects. Before doing any calculations we came up with the assumption that we could not rank the projects simply by inspecting the cash flows.
Without the ability to rank the projects based off of cash flows solely, we had to use some analytical criteria as a capital budgeting analyst to provide some...

...1. THE INVESTMENTDETECTIVE
This case presents the cash flows of eight unidentified investments, all of equal initial investment size. The student’s task is to rank the projects. The first objective of the case is to examine critically the principal capital-budgeting criteria. A second objective is to consider the problem that arises when net present value (NPV) and internal rate of return (IRR) disagree as to the ranking of two...

...The InvestmentDetective Case
We can use normal investment to calculate the data, but we also can do it as reinvestment to invest every project for the same years. For every question, I will give answers for both normal investment and reinvestment.
1. We can rank the projects simply by the cash flow data.
Normal investment:
Rank
1
2
3
4
5
6
7
8
Project number
3
8
6
1
5
7
4
2
Cash flow
8000
2150
200...

...Analysis
Actually, we can rank the projects by simply inspecting the cash flows. However, it is not a good method to rank the projects. In order to ensure that the investment projects selected have the best chance of increasing the value of the firm, we need tools to evaluate the merits of individual projects and to rank competing investments. In this case, our group using some tools which are Payback Period, Net Present Value (NPV) , Profitability Index (PI),...

...For the exclusive use of S. YAN
￼UV0072 Version 2.2
￼THE INVESTMENTDETECTIVE
The essence of capital budgeting and resource allocation is a search for good investments in which to place the firm’s capital. The process can be simple when viewed in purely mechanical terms, but a number of subtle issues can obscure the best investment choices. The capital-budgeting analyst, therefore, is necessarily a detective who must...

...Case Write-Up: The InvestmentDetective
Case Summary
The purpose of this case is to become a capital budgeting analyst and evaluate which set of free cash flows for 8 projects will result in the most effective investment for a firm’s capital. The objective given is to rank the four best that the company should accept. The case is broken down into three separate steps including the given information about estimated cash flows (inflows & outflows),...