Principles of Corporate Finance
Internal Rate of Return Pitfall 1 - Lending or Borrowing? w With some cash flows (as noted below) the NPV of the project increas ...
Internal Rate of Return Pitfall 1 - Lending or Borrowing? w With some cash flows (as noted below) the NPV of the project increas ...
Internal Rate of Return Pitfall 2 - Multiple Rates of Return w Certain cash flows can generate NPV=0 at two different discount r ...
Internal Rate of Return Pitfall 2 - Multiple Rates of Return w Certain cash flows can generate NPV=0 at two different discount r ...
Internal Rate of Return Pitfall 3 - Mutually Exclusive Projects w IRR sometimes ignores the magnitude of the project. w The foll ...
Internal Rate of Return Pitfall 4 - Term Structure Assumption w We assume that discount rates are stable during the term of the ...
Internal Rate of Return Calculating the IRR can be a laborious task. Fortunately, financial calculators can perform this functio ...
Internal Rate of Return Calculating the IRR can be a laborious task. Fortunately, financial calculators can perform this functio ...
Profitability Index w When resources are limited, the profitability index (PI) provides a tool for selecting among various proje ...
Profitability Index Example We only have $300,000 to invest. Which do we select? Proj NPV Investment PI A 230,000 200,000 1.15 B ...
Profitability Index Example - continued Proj NPV Investment PI A 230,000 200,000 1.15 B 141,250 125,000 1.13 C 194,250 175,000 1 ...
Profitability Index Example - continued Proj NPV Investment PI A 230,000 200,000 1.15 B 141,250 125,000 1.13 C 194,250 175,000 1 ...
Linear Programming w Maximize Cash flows or NPV w Minimize costs Example Max NPV = 21Xn + 16 Xb + 12 Xc + 13 Xd subject to 10Xa ...
u Making Investment Decisions with the Net Present Value Rule Principles of Corporate Finance Brealey and Myers Sixth Edition Ch ...
Topics Covered w What To Discount w IM&C Project w Project Interaction ËTiming ËEquivalent Annual Cost ËReplacement ËCost of ...
What To Discount Only Cash Flow is Relevant ...
What To Discount Only Cash Flow is Relevant ...
What To Discount ‹Do not confuse average with incremental payoff. ‹Include all incidental effects. ‹Do not forget working capita ...
w Be consistent in how you handle inflation!! w Use nominal interest rates to discount nominal cash flows. w Use real interest r ...
Inflation Example You own a lease that will cost you $8,000 next year, increasing at 3% a year (the forecasted inflation rate) f ...
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