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CASE 17
The Investment Detective
WRITTEN BY: STEPHANIE MILAS
FEBRUARY 28, 2019
Financial Analysis and Decision Making, MBA 7300-01
Case Introduction
In The Investment Detective case study the reader is to take the role of a capital budgeting
analyst and evaluate eight projects that will result in the most effective investment for the firm.
The main objective is to rank the four best projects that the firm should accept. By looking at the
cash flows for all the projects, it is evident that the four best projects will be chosen exclusively
based on quantitative concepts/analysis. These quantitative concepts include NPV, IRR, MIRR,
Profitability Index (PI), Payback Period, and Discounted Payback Period.
Some other information to consider in this case are as follows. Each project has the same initial
cash outflow of $2 million. All the projects are to be from the same risk class. Management has
determined that projects 7 and 8 are mutually exclusive. The firm has never officially estimated
the WACC and in the past the discount rate that has been used is 10%. However, some of the
managers believe that the discount rate could be higher.
Ranking Projects Simply By Inspecting Cash Flows
It is not feasible to simply rank the projects by inspecting the cash flows because the time value
of money and the cost of capital of the firm is not considered. Before the projects can be ranked,
all the cash flows need to be brought to the present time. It is known in the finance world that a
dollar received now is more valuable than a dollar received in the future. Therefore, as a good
