LEC02_Investment Rules_Web - Lecture 2 Investment Rules(Reading Chapter 5 FINA 4315 Advanced Business Financial Analysis Outline Net present value(NPV

LEC02_Investment Rules_Web - Lecture 2 Investment...

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Lecture 2 Investment Rules (Reading: Chapter 5) FINA 4315 Advanced Business Financial Analysis
Outline Net present value (NPV) method (textbook 5.1) Payback period method (5.2) Discounted payback period method (5.3) Internal rate of return (IRR) method (5.4) Problems with the IRR method (5.5) Investing or financing? Multiple rates of return Scale problem and timing problem
The Payback Period Rule Payback Period: How long does it take the project to “pay back” its initial investment? Payback Period = number of years to recover initial costs Payback Period Rule Minimum Acceptance Criteria: set by management Ranking Criteria: Choose the project with the shortest payback period
The Discounted Payback Period Rule

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