## Deadly Mistakes To Get Into College Ep2

The point of intersection of two schedules (r = 9,82%) showing value of coefficient of discounting at which both projects have identical NPV is called as Fischer's point. It is remarkable that serves as the border point dividing situations which "are caught" by criterion of NPV and "are not caught" by criterion of IRR.

Very often the enterprise comes up against a situation when there is a number of alternative (mutually exclusive) investment projects. Naturally, there is a need for comparison of these projects and a choice of the most attractive of them by any criteria.

In investment activity essential value has risk factor. Investment is always connected with an immobilization of financial resources of the enterprise and is usually carried out in the conditions of uncertainty which degree can vary considerably.

It is necessary to comment especially on a situation when NPV of the investment project is equal to zero. In case of implementation of such project welfare of owners of the enterprise will not change, however outputs will increase. As often the increase in production capacity of the enterprise is estimated positively, the project nevertheless is approved

This example shows that high NPV value should not serve as decisive argument at decision-making of investment character as, first, it is defined by the scale of the project and can be secondly interfaced to rather high risk. On the contrary, high IRR value in many cases indicates existence of a certain reserve of safety concerning this project.

As it was already noted, the main characteristics of the investment project are elements of a cash flow and coefficient of discounting therefore the accounting of risk is carried out by the amendment of one of these parameters.

From the given calculations it is visible that all three initial projects are accepted therefore it is necessary to analyse their possible combinations. By criterion of IRR relative the best is the combination of projects A and C, however such conclusion is not quite correct as the safety reserve in both cases is very high, but other combination gives bigger possible increase in the capital of the company.

Basis of a technique is the assumption that profitability of the investment project is directly proportional to the related risk, i.e. the risk of the specific investment project in comparison with a risk-free (basic) standard is higher, the demanded profitability of this project is higher.

It is known that fixed assets are a set of the material and material values used as means of labor and operating in a natural form for a long time both in the sphere of production of goods, and in the non-productive sphere.

At first sight, it is necessary to include all projects with the maximum NP value in a portfolio Such decision is the simplest, but not necessarily optimum. Besides, if the number of the competing projects is great, search of options regarding compliance to restriction on the volume of total investments can be rather tiresome.

It is possible to specify the received value. Let's say that by several iterations we defined the closest whole values of coefficient of discounting at which NPV changes a sign: at r of =16% of NPV = +0,05; at r of =17% of NPV =-0,1 Then the specified IRR value will be equal:

It is possible to write the general formula connecting the usual coefficient of discounting (r) applied in the conditions of inflation nominal coefficient of discounting () and an index of inflation (i): 1 +p = (1 + r) (1 + i).

For planning and implementation of investment activity it is difficult to overestimate value of the economic analysis. Thus the preliminary analysis which is carried out at a stage of development of investment projects is of special importance and promotes adoption of reasonable and reasonable administrative decisions.

Investment activity represents one of the most important aspects of functioning of any commercial organization. The reasons causing need of investments are updating of the available material base, increasing production, development of new kinds of activity.