Finance Boot Camp NotesNPV = PV of cash flows – initial investment, Initial investment – cash outflow at year 01.IRR – Internal rate of return2.Payback/Discounted3.EAC (Equivalent annual cost)4.Investment Timing5.Profitability IndexStudy these concepts, easy marks, all you need to know is how to use this conceptR – discount rateConcepts are from chapter 81.IRR – Internal rate of return(this can only be used for 2 cash flows)Things used in conjunction with NPV, discount rate when NPV = 0,Whatever is the IRR is it’s the maximum discount rate you can have before NPV equalsnegative, obviously when it’s negative you reject the project, and vice versa.That’s one way^, another way is to compare 2 projectsYou choose the project with the higher IRR obviously the cash flows are worth moreHow we find IRR:1 scenario – Equal cash flows0 = C (PMT) PVAF (I/Y, n) – Initial investment (NOTATION)Example,0 = 1,000 x PVAF(I/Y,10) – 5,000 (USE ANNUITY FORMULA TO SOLVE THIS)N = 10PMT = 1,000I/Y =?PV= -5,000FV = 02ndscenario – unequal cash flows*WE CAN’T USE OUR PV FORMULA HENCE IN CALCULATOR WE HAVE TO SOLVEMATHEMATICALLY0 = (5,000/(1 + IRR) + 7,000/(1 + IRR)^2 )(MONEY YOUR EARNING IN DIRRECNT INCRIMENTS)–3,000(INITIAL INVESMENT)