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Hello Sir!!
First of all congratulations to Opentution team and big Thank you of all of you guys providing quality Education free of cost and keep it up guys.
sir I have few questions
1) what do we mean by organisations business model?
2) major issue with EBITDA is it fails recognise amounts required for Asset Replacement. What do we mean by this and why it is the case?
3) How one project can have multiple IRR’s and why this happens?
4) IRR measures Economic Yield. What do we mean by this?1. It is the company’s plan as to how they run the business and the aims of the business
2. EBIDTA approximates to the net cash generated each year, however some of that cash will be needed to replace assets – this is not included in the calculation of EBIDTA
3. This is a minor point as far as the exam in concerned, but for every change of sign in the cash flows, there is potentially (but not necessarily) one IRR. So if there are outflows followed by inflows followed by outflows, there are 2 changes of sign (negative to positive, then positive to negative) and therefore possibly 2 IRR’s. You cannot be asked to calculate multiple IRR’s in the exam.
4. I don’t know where you read this, but it is a pretty meaningless statement. The IRR is (by definition) then rate of interested at which the NPV is zero.
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