FIN722 Corporate Finance GDB No 01 Spring 2019 Solution & Discussion
Mr. Ali, an internee of finance in a manufacturing firm, has been assigned a project to evaluate. He has the option of using NPV, IRR, Payback and discounted payback techniques of evaluation. By applying these techniques, he has to comment on the financial viability of the project.
However along with it, he has been assigned with another task. He has been asked to choose any of the above mentioned evaluation techniques and need to provide his critical analysis upon that. He has chosen PAYBACK evaluation method for this purpose and presented the following statements:
Statement 1: Discounted Payback Period of a project is shorter than regular Payback Period.
Statement 2: Such project which has discounted payback period less than the overall life of the project must results in positive NPV.
Analyze each of the above given two statements to identify either these correct or not. Also provide appropriate reasoning in support of each answer.
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