You are a new financial analyst at Allistcr Corp, a large manufacturing firm tha
ID: 2750482 • Letter: Y
Question
You are a new financial analyst at Allistcr Corp, a large manufacturing firm that is currently looking into diversification opportunities. The vice president of marketing is particularly interested in a venture that is only marginally connected with what the firm does now. Other managers have suggested enterprises in more closely related fields. The proponents of the various ideas have all provided you with business forecasts from which you have developed financial projections including project cash flows. You have also calculated each project's IRR with the following results: You are now in a meeting with senior managers that was called to discuss the options. You have just presented your analysis ending your talk with the preceding information. After your presentation, the vice president of marketing stands, congratulates you on a fine job, and states that the figures clearly show that Project A is the best option. He also says that your financial analysis shows that project A has the full backing of the finance department. All eyes, including the CFO's, tum to you. How do you respond?Explanation / Answer
The response of the financial analyst should not only be based on the IRR
Even though the IRR is the highest of Project A , it still should not be recommended as the project is totally from a different new feild.
Project C has the lowest IRR , but since it from a related feild Project C should be preffered over Project A or Project B
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