Supply Chain Management Essay Example | Topics and Well Written Essays - 500 words - 3

Supply Chain Management - Essay Example However, this conclusion entirely depends on the method used to compute the discount rate and it has not been clearly specified whether inflation and other economical changes have been accommodated in this discount rate. The required IRR for the investment is 15%. But the actual IRR for the investment turns out to be 23.5%, which is higher than the required rate. This indicates that the investment is preferable, when the required and actual IRR values are concerned. IRR indicates the discount or interest rate at which NPV equates to zero, i.e., a ‘no gain – no loss’ situation. Higher this rate, higher is the margin of safety. As the actual IRR is higher than the required IRR for the investment, it is clear that the investment is profitable and SBX has a safety margin of about 5.5 %, in case any of the estimations go wrong. Depreciation is straight line and the salvage value is zero – Straight line depreciation is not a valid measure and it is highly unlikely for the salvage value to be zero (at least equals to scrap value in real