Chap008.ppt - Valuation Techniques This chapter presents...

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8- 2 Valuation Techniques This chapter presents multiple valuation techniques used during the capital budgeting process.
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8- 3 Chapter 8 Learning Objectives 1. Calculate the net present value of an investment. 2. Use the net present value rule to analyze three common problems that involve competing projects: (a) when to postpone an investment expenditure, (b) how to choose between projects with unequal lives, and (c) when to replace equipment. 3. Understand the payback rule and explain why it doesn’t always make shareholders better off. 4. Calculate the internal rate of return of a project and know what to look out for when using the internal rate of return rule. 5. Calculate the profitability index and use it to choose between projects when funds are limited.
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8- 4 Net Present Value 净现值 Net Present Value - Present value of cash flows minus initial investments Opportunity Cost of Capital - Expected rate of return given up by investing in a project 1 2 0 1 2 ... (1 ) (1 ) (1 ) t t C C C NPV C r r r
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8- 5 Net Present Value: Example 1 Assume you plan to invest $1,000 today and will receive $600 each year for two years (assume the cash is received at the end of the year). What is the net present value if there is a 10% opportunity cost of capital?
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8- 6 Net Present Value: Example 1 Assume you plan to invest $1,000 today and will receive $600 each year for two years (assume the cash is received at the end of the year). What is the net present value if there is a 10% opportunity cost of capital?
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