Financial Management Course (ARISTEIDIS LEKKAS and TITOS GAVALAS)

Project 1 – Deliverable Summary

Below, we present our results and the NPV profile of the project.

Commentary:

Focusing on the CF to the firm, we note that this is a simple investment with total CF >0. Thus, IRR (22%) and Payback
Period (5) work. Limitations of these two measures do not apply in this case. If the IRR of the OCC<22%, we should
accept the project. We would derive the same result if we were to employ the NPV measure; we would accept a
project with a NPV>0. We can observe that through the NPV Profile (see 'NPV Profile - Graph Representation).

The ROC of 86.24% and the ROE of 122.73% are both unrealistic - adding extremely high values to our set distorts
the statistical average. These values (439.23% or 634.79%) result from accounting policies. The strait line method
employed reduces the salvage value of our investment down to zero at the end of the project's life and the Operating
Income are maximized at that year, affecting the denominator (decreasing) and the numerator (increasing) of the
fraction, respectively. However, the Average ROc of 35.61% and the Average ROE of 49.35% seem realistic, compared
to the previously discussed returns. Yet, ROE may be elevated due to the leveraging effect of financing with debt
almost half of the initial investment.