JP Products, Inc. has gathered data to evaluate the attractiveness of a potential project. The company knows the cash flows expected under different scenarios. It has conducted a focus group that ranks various product attributes, and it has the ranking of various marketing techniques provided by a consulting company. What method should JP Products use to evaluate this project? Explain why you think this method is the best one to use.
JP Products should use either the Net Present Value (NPV) financial model, or the Internal Rate of Return (IROR) financial model to determine if the investment will provide long term value for the company.
NPV states that money reduces in value over time --- the dollar (or any currency) will actually decline in value over time due to economic factors such as inflation, interest rates, decline in purchasing power, price increases, and the like.
IROR states that a firm earns money on its investments, and this earned money is a ...
Investing is a fundamental growth mechanism for a corporation. In this example we detail and analyze the components of investing, and discuss the measurement criteria for determining a successful investment.