Class Notes CH9 - CORPORATE FINANCE FIN 420 Review of Capital Budgeting Techniques Chapter 9 1 Chapter Outline \u2022 Net Present Value(NPV \u2022 Payback

Class Notes CH9 - CORPORATE FINANCE FIN 420 Review of...

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CORPORATE FINANCE FIN 420 Review of Capital Budgeting Techniques Chapter 9 1
Chapter Outline Net Present Value (NPV) Payback Period Discounted Payback Period Average Accounting Return (AAR) Internal Rate of Return (IRR) Profitability Index (PI) 2
Review: Basic Definitions Present Value earlier money on a time line Future Value later money on a time line Interest rate Discount rate Cost of capital Opportunity cost of capital Required return 3
Review: Future Values FV = PV(1 + r) t FV = future value PV = present value r = period interest rate, expressed as a decimal t = number of periods Future value interest factor = (1 + r) t 4
Review: Present Values How much do I have to invest today to have some amount in the future? 5
How much value is created from undertaking an investment? 6
7
NPV Decision Rule If the NPV is positive, accept the project

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