HARDING PLASTIC MOLDING COMPANY
(Capital Budgeting: Ranking Problems)
OBJECTIVE: The objective of this case is to explore the ranking differences that may result from using the PI, NPV, and IRR evaluation techniques. It illustrates the time disparity, size disparity, and life disparity problems and the appropriate approaches to the resolution of these problems. This case works well either as a homework problem coinciding with the introduction of project ranking and capital-rationing material or as an in-class problem lecture.
DEGREE OF DIFFICULTY: Moderately Difficult
Question Answers
Although all methods might grant projects acceptable ratings, NPV, PI, and IRR will not necessarily yield the same ranking order. Such a phenomenon is the result of different cash inflows over time (projects A and B), time horizons (projects E and F) and/or project sizes (projects C and D).
No. While, in general, it is true that when one discounted cash flow method (NPV, PI, or IRR)......
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