0914-2

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FT news Record-breaking military deal The great British Firewall- GCHQ-benefit: local developer firm+PWC Snowden seeks a pardon-politically important; moral arguments NPV &cash values How do firms invest? CFO decision tool Multiples- you don't know about the comparison Book rate of return- define by accounting standard- not may reflecting economic situation; could be useful to compare within the same industry; generally higher is desirable Payback -break even time -shortsighted; ignores later year cash example- 2 years or less payback NPV VS payback period Improved- discounted payback rule Why do companies still use payback and discounted payback? Managerial compensation Easier to use Reinvest Internal rate of return NPV=-4000+2000/(1+IRR)+4000/(1+1RR)^2=0 Excel function: IRR Pitfall 1 lending or Borrowing? IRR cannot distinguish loan or investment Pitfall 2 Multiple Rates of Return Mining- shut down project – environmental impact What if there is none IRR? It never get to zero; the project is too good; you can never kill it
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