@mjmegha said:@FeRMioN Why not A? If we have positive NPV then we can accept the project without considering IRR because both give us same results.
Because both are giving the same result - Accept
@mjmegha said:@TONYMBA From where have you ordered Schweser notes and how?
from OM xerox,Mumbai.....they will courier it to my uncle's house in belapur,navi mumbai at Rs 800/-.....else they will courier it to any place outside mumbai at Rs 1200/-
you can call and ask for courier : http://bit.ly/OmbWZJ
you can call and ask for courier : http://bit.ly/OmbWZJ
@anand5787 said:@mjmegha I thinkIn NPV calculation, the rate at which the cash flows are reinvested are assumed at WACC which may not be the correct evaluation. Therefore NPV and IRR gives better picture when calculating the feasibility of the project. Hence B
Why is reinvestment at WACC not a correct assumption?
WACC is the opportunity cost of the company, WACC is what the shareholders expect to earn to breakeven etc
WACC is the opportunity cost of the company, WACC is what the shareholders expect to earn to breakeven etc
@mjmegha said:What would be the number of shares issued?if Equity= $60,000Face value= $10 and Equity shares are issued at a premium of 25%.
6000 or 4800?
I guess its 6000.
Do tell the answer.
@leolazer yes both are giving the same result but in case we have positive NPV we do not consider IRR so we can accept any project just by considering NPV also. then why to consider both?
@kushalagg I am confused between 6000 and 4800. Ma'am has told us that it is 4800 but some people are saying that we issue number of shares on face value not at premium...
@mjmegha said:@TONYMBA how is the quality/clarity of notes?
haven't received yet...i will receive those notes around jan 15....other puys told that clarity is good with spiral binding
@mjmegha A is the correct answer only. Though B may have been used here considering that both give a positive decision on whether to undertake the project.
However, CFA curriculum only says that IRR is an ambiguous marker to decide on projects as it may be misleading in certain scenarios.
Refer following link:
www.sambaker.com/econ/invest/invest.html
@mjmegha 4800 should be the answer. Your ma'am is correct. Shares can be issued at premium. Premium being ignored is when issued capital is calculated in Reporting where onle face value is used.
@kushalagg In Schweser notes, answer is B. Is it possible that Schweser notes and Curriculum have different answers for the same question?
Sure
Yea it may be possible. But schweser also states to consider NPV over IRR
@mjmegha said:@leolazer yes both are giving the same result but in case we have positive NPV we do not consider IRR so we can accept any project just by considering NPV also. then why to consider both?
Let me explain this with a unrelated example.
You can go from Mumbai to Pune
A) by Bus
B) by Bus and by Car
C) by Ship
What is your answer?
You can go from Mumbai to Pune
A) by Bus
B) by Bus and by Car
C) by Ship
What is your answer?
@kushalagg said:Yea it may be possible. But schweser also states to consider NPV over IRR
The question is not about the choice between NPV and IRR - rather it is about only NPV or both NPV and IRR
@mjmegha said:@kushalagg I am confused between 6000 and 4800. Ma'am has told us that it is 4800 but some people are saying that we issue number of shares on face value not at premium...
Equity / Networth = BV + Share Premium (on a very basic level)
Hence 60000 = 1.25 * BV
=> BV = 48000
=> N = 48000 / 10 = 4800
Hence 60000 = 1.25 * BV
=> BV = 48000
=> N = 48000 / 10 = 4800