The Popularity of Financial Ratios in Multivariate Modeling Essay

The Popularity of Financial Ratios in Multivariate Modeling - Essay ExampleIn six years time, it has a higher positive cash flow level of 105 as compared to the Beta of 83.The ARR for Alpha is higher than that for Beta at 29.4% while that of Beta is at 1.6%. This is an indication of the viability of the project to perform as anticipate when acquired. As such the business assets for Alpha are increasing at a higher prise than for the Beta. The rate of ARR for Alpha is an indication of the expected rates of return on the value of the assets for is higher (Robb & Robinson, 2012). The NPV of Alpha is also higher than that of Beta. It indicates that project Alpha result increase the shareholders equity more than project Beta. For all these reasons, it is advisable that NENE should choose project Alpha.Internal Rate of Return is the method that gives the investors an favorable way of estimating the quantity or rate of return that an investment is expected to offer. This is usually the discount rate in which the Net Present Value of the expected cash flows is equal to zero. The method can be calculated through a trial and error method, where the discount rate will be vary until we find where the NPV = 0 (Balmer, 2001). Through a general rule, the IRR with an NPV which is greater than zero is usually preferred. This method also advises that all the IRRs with values higher than the opportunity price of capital of the project should always be accepted.While using this method, one is able to estimate the return on the initial invested amount. The method is also tardily to use as its calculations are not very complex. The method also provides a clear and easy way of comparing the projects to come up with the around preferred.