Lecture8 - CSA 273 Lecture: 2/01/08 Introduction to...

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CSA 273 Lecture: 2/01/08 Introduction to Financial Projects 1. Class Examples 2. Internal rate of return of a project A. Annual Discount Factor B. Deriving IRR (Internal Rate of Return) 3. Choosing Best Among Multiple Projects
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Definition of Financial Project A combination of costs and benefits occuring at different points in time. Negative cash flow = money paid into a project. Positive cash flow =money received from a project. Central Problem: Find which among several financial projects provide the greatest benefits.
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PV of a Project Example 1: Find present value of a project which requires $100 now and $200 a year from now. $500 is paid to investor 2 years from now. i =10% compounded semi-annually. Soln: Draw time -line sketch. 0 1 2 $100 $200 $500 n (years) mn (periods) 2 4
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PV of a Project Method 1: Sum the present values of each cash flow. mn m i 1 FV PV - + =
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Method 1: Sum the present values of each cash flow. 2
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This note was uploaded on 04/17/2008 for the course CSA 273 taught by Professor Patton during the Spring '08 term at Miami University.

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Lecture8 - CSA 273 Lecture: 2/01/08 Introduction to...

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