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Gold/Mining/Energy : Winspear Resources
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To: ddl who wrote (26173)7/12/2000 3:45:30 PM
From: maintenance  Read Replies (1) of 26850
 
ddl, Evaluating a company or project using 8% as the discount rate does not mean that they will accept 8% on their money. The rate used should be the rate at which they can borrow money, or their own internal rate of return. Which you use is dependant on whether there is an abundance of projects to choose from. It is all about the efficient allocation of scarce resources. If DBRSY's cost of money is 8% then any positive value of NPV means they should proceed with the project, in this case, the purchase of WSP. WSP is clearly a worthy purchase. If you want to know what rate of return the project will yield. Keep plugging in different discount rates into your NPV calculator until you arrive at an NPV of zero. That rate is what the project will return if all your assumptions turn out to be correct.

Cheers
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