Posted: January 10th, 2017

Explains the theoretical differences between IRR and NPV and comments on any practical aspects which might explain CBA Limited’s past preference for IRR

Discuss the capital structure propositions of  Modigliani and Miller

.                       (1958 and 1963) with appropriate diagrams and critically examine

the implications of the propositions for financial managers.                                                                                       [60%]

• What we have observed in the real world is that some companies rely heavily on debt in their capital structure and some do not use

debt at all. Fully explain why this is so.                                                                                                      [40%]

[100% in total]

6. Assume you are the new financial manager for CBA Limited, a company which has always evaluated its investments using IRR as the selection criterion. The company’s managing director thinks that NPV may be a better method, and is aware that some companies use multiple methods, for example NPV in combination with a non-discounting technique such as payback or accounting rate of return. He has asked for your opinion. Write a report to the managing director which:

• Explains the theoretical differences between IRR and NPV and comments on any practical aspects which might explain CBA Limited’s

past preference for IRR;                                                                                                     [60%]

• Discusses the advantages and disadvantages of using multiple methods

for the evaluation of investments.                                                                                      [40%]