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Gold/Mining/Energy : Trump's 12 Diamond Picks, Discussions Limited
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To: 1king who wrote (1912)1/20/1999 8:12:00 PM
From: maintenance  Read Replies (1) of 2251
 
NPV is a decision maker, if NPV is positive, do it, if NPV is negative don't. In comparing uses of capital, the one with the higher NPV wins. These are not true of IRR. For example a project A yields an IRR of 100%, Project B yields an IRR of 50%, A wins right, not neccessarily. Project A requires a $1 investment and returns $2. Project B requires a $10,000 investment and yields $15,000. A now seems the better project. IRR assumes a constant re-investment rate, this is seldom possible. It is for these reasons that I use NPV in my evaluations. NPV leaves no questions.

On differing discount rates. Yes the difference in valuations can be very dramatic. The selection of an appropriate rate is crucial. For example a prefered share that pays a constant amount is of infinite value if the discount rate is zero.

I could see using 7% as reasonable for WSP but not much less. I have been using 10% lately but would be comfortable with 7%, I think 5% is too low.

Cheers
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