Capital Budgeting.pdf - The Basics of Capital Budgeting Net Present Value(NPV Internal Rate of Return(IRR Modified Internal Rate of Return(MIRR Regular

Capital Budgeting.pdf - The Basics of Capital Budgeting Net...

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The Basics of Capital Budgeting Net Present Value (NPV) Internal Rate of Return (IRR) Modified Internal Rate of Return (MIRR) Regular Payback Discounted Payback
What is capital budgeting?
Steps to Capital Budgeting 1. Estimate CFs (inflows & outflows). 2. Assess riskiness of CFs. 3. Determine the appropriate cost of capital. 4. Find NPV and/or IRR. 5. Accept if NPV > 0 and/or IRR > WACC.
What is the difference between independent and mutually exclusive projects?
What is the difference between normal and nonnormal cash flow streams?
Net Present Value (NPV) Sum of the PVs of all cash inflows and outflows of a project: N 0 t t t ) r 1 ( CF NPV
Example Projects we’ll examine: CF is the difference between CF L and CF S . We’ll use CF later. Cash Flow Year L S CF 0 -100 -100 0 1 10 70 -60 2 60 50 10 3 80 20 60

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