The IRR and NPV Rules Side by Side.
The Japanese company Kageyama Ltd. is considering whether or not to open a new factory to manufacture capacitors used in cell phones. The factory will require an investment of ¥1,000 million. The factory is expected to generate level cash flows of Y 294.8 million per year in each of the next five years. According to information in its financial reports, Kageyama’s opportunity cost of capital for this type of project is 11 percent.
1. Determine whether the project will benefit Kageyama “s shareholders using the NPV rule.
2. Determine whether the project will benefit Kageyama “s shareholders using the IRR rule.