Financial performance measures in the private sectorFinancial performance measures in the private sector Chapter 7
kaplanpublishing 87
Looks at present value of •
cash inflows less present
value of outflows of project.
Any project with a positive •
NPV is viable.
Risk can be considered.•
Cash flows interest •
shareholders as less likely
to be manipulated.
Considers all cash flows of •
a project.
Can be used to compare •
projects as gives an
absolute measure.
It does not easily allow •
two projects of very
different scales to be
compared.
It is based on assumptions •
about cash flow, the timing
and the cost of capital.
Challenging to use for •
target-setting.
IRR
Discount rate when •
NPV = 0
Accept project if IRR > •
firm’s cost of capital.
Provides alternative to •
NPV when cost of capital
of project is uncertain.
Advantages as NPV.•
Disadvantages as NPV.•
Recent exam questions
NPV June 2008 - Q4
EBITDA December 2008 - Q2
Exam focus