Chapter 14 pt 2

Profitability (ROI) Analysis

Return on investment (ROI) analysis focuses on a project’s financial _____.

which one measures adjusted dollar return?

NPV measures return on investment (ROI) in ____ terms.

NPV is merely the sum of the ____ values of the project’s net cash flows.

the discount rate used is called the _______________. Recall that this is also the opportunity cost of capital, which depends on the riskiness of the investment.

The discount rate used is called the project cost of capital. Recall that this is also the ''opportunity cost of capital'', which depends on the riskiness of the investm

NPV is the ---- contribution of the project to the equity value of the business.

NPV is the dollar contribution of the project to the --- value of the business.

A positive NPV signifies that the project will enhance the financial condition of the business.
The greater the NPV, the more --------- the project financially.

IRR measures ROI in percentage (rate of return) terms.
It is the discount rate that forces the PV of the inflows to equal the cost of the project. In other words, it is the discount rate that forces the project’s NPV to equal $----.
IRR is the project’s expected rate of return.

IRR measures ROI in percentage (rate of return) terms.
It is the ------- rate that forces the PV of the inflows to equal the cost of the project. In other words, it is the discount rate that forces the project’s NPV to equal $0.
IRR is the project’s expected rate of return.

IRR measures ROI in percentage (rate of return) terms.
It is the discount rate that forces the PV of the inflows to equal the cost of the project. In other words, it is the discount rate that forces the project’s NPV to equal $0.
IRR is the project’s -------- rate of return.

If a project’s IRR is greater than its cost of capital, then there is an “------” return that contributes to the equity value of the business.
In our example, IRR = 29.7% and the project cost of capital is 10%, so the project is expected to enhance Midtown Clinic’s financial condition.

Both NPV and IRR require a reinvestment rate assumption.

NPV assumes it is the cost of capital.
IRR assumes it is the IRR rate.

Of the two, reinvestment at the cost of capital is the better assumption since NPV measures profit in dollars.

MIRR forces reinvestment at the cost of capital.

________

Both NPV and IRR require a

NPV assumes it is the cost of capital.
IRR assumes it is the IRR rate.
Of the two, reinvestment at the cost of capital is the better assumption since NPV measures profit in dollars.

MIRR is interpreted in the same way as is IRR. In our example, MIRR = 21.4% and the project cost of capital is 10%, so the project is expected to contribute to shareholder wealth (or enhance the financial condition of a NFP business).
Note that the value of the MIRR for any project falls in between the project cost of capital and IRR values.

_______
MIRR is interpreted in the same way as is ------

MIRR is interpreted in the same way as is IRR. In our example, MIRR = 21.4% and the project cost of capital is 10%, so the project is expected to contribute to shareholder wealth (or enhance the financial condition of a NFP business).
Note that the value of the MIRR for any project falls in between the project cost of capital and IRR values.

________
MIRR is interpreted in the same way as is IRR. In our example, MIRR = 21.4% and the project cost of capital is 10%, so the project is expected to_____ or ______

Note that the value of the MIRR for any project falls in between the project cost of capital and IRR values.

Although NPV and IRR generally are perfect substitutes, there are yet other ROI measures that can be used; i.e., the _________________

Presumably, not-for-profit providers have important --------- besides financial ones. Other considerations can be incorporated into the analysis by using:
The net present social value model.
Project scoring.

Presumably, not-for-profit providers have important goals besides financial ones. Other considerations can be incorporated into the analysis by using:
1 The net present social value model.
2 ------------------

TNPV>=0--------------------,! But NPSV >= 0!!

The net present social value (NPSV) model is based on the fact that the total value of a project ---------------------- (NPV) plus its social value.

Project scoring uses a ------- to create a numerical “score” for projects that incorporates both financial and nonfinancial factors.
Note the scores attached to projects are non-linear in the sense that a project with a score of 14 is not necessarily twice as good a project with a score of 7.

Project scoring uses a matrix to create a numerical “score” for projects that incorporates both ----- and ------l factors.
Note the scores attached to projects are non-linear in the sense that a project with a score of 14 is not necessarily twice as good a project with a score of 7.

Note the scores attached to projects are non-linear in the sense that a project with a score of 14 is not necessarily twice as good a project with a score of 7.

Post Audit

The post audit is a formal process for monitoring a project’s performance over time.

It has several purposes:

Improve forecasts
Develop historical risk data
Improve operations
Reduce losses