Chegg, I am confused with these 5 questions, so I need help. I would really appr

Question

Chegg, I am confused with these 5 questions, so I need help. I would really appreciate if you can answer these 5 questions in detail. The more detail and explanation that you can provide, it will help me understand the problem and explain it more clearly. These questions are important to me because they are part of a take home exam that my professor assigned to the class.

Note: Another thing that I would like to add. I would really appreciate if you don't use the same answers that were used already in the past, because I looked at those answers and I was not satisfied. It is not the answers that I am looking for. Please, any help would mean a lot to me. Thanks in advance.

1) Would the NPV (net present value) change if your opportunity cost (cost of forsaking) changed?

2) Would a franchise's IRR (internal rate of return) change if your opportunity cost changed?

3) What is the underlying cause of ranking conflicts of between NPV and IRR?

4) Under what condition can conflicts occur?

5) Which method is the best? Why?

Explanation / Answer

1) Yes, NPV would change with the change in opportunity cost. The reason is that to determine NPV of a Project, we discounted future value of the inflows with the opportunity cost to convert them in present terms and than substract Present outflow from this to calculate NPV of the Project. So, with the change in opportunity cost disocunting factor also changes and as a result NPV will change.

2) IRR will not change with the change in opportunity cost. The reason is that IRR are the discount rate which makes NPV of a project zero. Theses rate depends on the cash inflows and outflows and not on the opportunity cost.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.