CITIC Tower II Case Solution
The third alternative among the three scenarios indicates the 25% of net profit margin at the tax rate of 20%, which is the highest. Although the growth rate in cash flows is the highest, which is why the average internal rate of return is generated from the project. After considering all relevant factors, it is recommended that the company should proceed with the project.
The sensitivity of the project return towards the inputs and assumption is very low therefore,it would help the company in making better of decision making for capital budgeting and risk management. The company can generate the simulation analysis for the better variation explanation, however not necessary.
Investment is very attractive with respect to the Profitability and the Payback period of the investment. Moreover, the NPV and IRR can also provide positive outlook of the company where its profitability is 1.1 with the IRR of 8%.
Furthermore, the investment gives net cash flow of HK$158 million, which is very attractive with respect to the investment of around HK$1.1 billion.
It is sufficient to take decision with positive NPV, good IRR, reasonable Payback period, and attractive profitability Index.
Lastly, the decision is to accept the project…………………
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