BUSF_A01.qxd

Chapter 4 • Investment appraisal methods to do so. Indeed, it could even do this to raise the finance with which to make the £10 ...

Net present value Investment opportunities lasting for more than one year In reality, few investment opportunities last for only ...

Chapter 4 • Investment appraisal methods There is no reason why the interest rate should be the same from one year to the next; ...

Net present value A business is faced with an investment opportunity that involves an initial investment of £35,000, which is ex ...

Chapter 4 • Investment appraisal methods known as annuity tables. Even if such a table is not available, we can easily deduce th ...

4.3 Internal rate of return without mentioning that the 8 is euros whereas the 5 is pounds sterling. To make a sensible price co ...

Chapter 4 • Investment appraisal methods What, though, if the project were £120 initial outlay, followed by inflows of £69 at th ...

Internal rate of return Year Cash flow Present value ££ 0 (20,000) (20,000) 1 3,509 2 4,617 3 4,050 4 4,145 5 3,116 NPV (563) As ...

Chapter 4 • Investment appraisal methods Figure 4.1 below. The graph is close enough to being a straight line for this not to be ...

Internal rate of return Figure 4.1 Graph of the NPV against the discount rate for two projects (A and B) As the discount rate in ...

Chapter 4 • Investment appraisal methods What IRR fails to recognise in Example 4.4 is that if finance is available at 10 per ce ...

Internal rate of return However, now consider the following two projects: Cash flows Year Project C Project D ££ 0 (10,000) 10,0 ...

Chapter 4 • Investment appraisal methods It would be wrong to imagine that projects with unconventional cash flow profiles do no ...

Payback period Continuing to assess the investment opportunity in Example 4.1, page 84, the cash flows for which were: Year Zeni ...

Chapter 4 • Investment appraisal methods The decision rule for the PBP method is that projects will be selected only if they pay ...

Accounting (unadjusted) rate of return project will end prematurely. It ignores such risks as sales revenues being less than ant ...

Chapter 4 • Investment appraisal methods l ARR almost completely ignores the timing of the cash flows and hence the fin- ancing ...

4.6 Investment appraisal methods used in practice Table 4.1Summary of the relative merits of the four investment appraisal techn ...

Chapter 4 • Investment appraisal methods We have already seen in section 4.2 that NPV’s major theoretical justification stems fr ...

10.5 WACC values used in practice It seems likely that all, or all but a few, large businesses now use a discounting method in r ...