# Excel: Relationship Between NPV and IRR

Not what you're looking for?

Help needed to be answered is HIGHLIGHTED IN RED.

1. Do calculation in EXCEL and MICROSOFT WORD - make sure able to see calculation in background of cell

2. Describe relationship between NPV and IRR

3. Give explanation for why A or B Corporation is picked

(See attached file for full problem description).

##### Purchase this Solution

##### Solution Summary

The solution explains the relationship between NPV and IRR.

##### Solution Preview

Please see the attached files.

In a 1,050-1,500-word memo, define, analyze, and interpret the answers to items (c) through (h). .

Present the rationale behind each item and why it supports your decision stated in item (i). Also, attempt to describe the relationship between NPV and IRR.

Several different procedures are available to analyze potential business investments. Some concepts are better than others when it comes to reliability but all provide enough information to get the general scope of the investment. The five procedures that provide useful information are the Net present Value (NPV), the Payback Rule, the Average Accounting Return (AAR), the Internal Rate of Return (IRR), and the Profitability Index (PI). These procedures will help rank the projects from the greatest investment to the worst.

First, the most important concept of evaluating these investments is the NPV. NPV is defined as the difference between an investment's market value and its cost. It is only a good investment if it makes money for the company so a positive NPV will be needed. The projects can be ranked from the most positive NPV to the lowest to determine profitability. This quantitative ranking method is the best to use due to its consideration of the time value of money and its more accurate breakdown of value.

COMMENTS: NPV is a discounted cash flow technique, which explicitly recognize the time value of money. It is defined as the difference between the present value of cash inflow and cash outflows.

In our case we will choose Corporation B as it has higher NPV of $40251 as compared to the Corporation A's NPV of $20979.

Second, the IRR is the next closest alternative to the NPV calculations; therefore it is next in line as far as a method to calculate for investments. The IRR is the discount rate that makes the NPV of an investment zero. An investment should be accepted if it is higher than the required return; if it is lower, the project is not acceptable. The IRR can be a problem if cash flows are not conventional or when in this case with multiple projects to compare, the IRR can be misleading and not provide the actual best investment. With ...

##### Purchase this Solution

##### Free BrainMass Quizzes

##### Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

##### Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

##### Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

##### Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

##### Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.