Chapter 11 .pdf - Finance 302 Managerial Finance Ch.11 Investment Decision Criteria Fangfang Du Arizona State University Outline \u2022 \u2022 \u2022 \u2022 \u2022 \u2022

Chapter 11 .pdf - Finance 302 Managerial Finance Ch.11...

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Finance 302 Managerial Finance Ch.11 Investment Decision Criteria Fangfang Du Arizona State University
Outline Choosing Projects Net Present Value (NPV) Equivalent Annual Cost (EAC) Profitability Index (PI) Internal Rate of Return (IRR) Payback period
Choosing Projects One of the primary jobs of the financial manager is to decide which investments to take on. We need a system to decide whether to take on a project or not. (i.e. Eliminate all projects that are not profitable, and take on all projects that are profitable)
Choosing Projects Realistically, we often have limited resources and time we might only be able to choose a subset of projects In order to choose which of the profitable projects to choose, we will need to be able to rank them
Choosing Projects There are many ways to rank projects. We will cover the following ranking criteria, (You will learn them again in FIN 361) 1. Net Present Value (NPV) Equivalent Annual Cost (EAC) 2. Profitability Index (PI) 3. Internal Rate of Return (IRR) 4. Payback Period
Choosing Projects It is very likely that you will use these measures in your future career Percentage of surveyed financial managers say they use these measures “always " or “almost always":

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