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NPV and IRR - t CF 1 CF 2 CF n =(1 IRR 1(1 IRR 2(1 IRR n IC...

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NPV and IRR Calculations NPV NPV CF 1 CF 2 CF n = (1 + r) 1 + (1 + r) 2 + .…. + (1 + r) n - IC 0 NPV CFt n = t =1 (1 + r) t - IC 0 • The discount rate is represented by r. For general corporate decision-making and/or capital budgeting, the relevant discount rate is the WACC. IRR IC 0 = CF 1 CF 2 CF n (1 + IRR) 1 + (1 + IRR) 2 + … + (1 + IRR) n IC 0 CFt n = t =1 (1 + IRR)
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Unformatted text preview: t CF 1 CF 2 CF n = (1 + IRR) 1 + (1 + IRR) 2 + . ....+ (1 + IRR) n- IC • The IRR is the discount rate that makes the NPV equal to zero. Modified IRR • r = WACC COF t CIF t (1 + r) n-t • COF t = cash outflows n ∑ t = 0 (1 + r) t n = ∑ t =1 (1 + MIRR) n...
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