Notes 4-9-08 (CH7, Review Exam)

Notes 4-9-08 (CH7, Review Exam) - 4/9/2008 Notes Ch 7 NPV =...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
4/9/2008 Notes Ch 7 NPV = -initial investment + PV if cash flow Accept if NPV > 0 The best indicator of good or bad investment********************** Pay back period – time until the initial investment is recovered (C0) Accept if PBP < specific cutoff time No Discount Neglect all of the cash flow after the cutoff period Internal Rate of Return (IRR) – Discount rate at which NPV = 0 Pitfalls of IRR 1. Could not take on mutually exclusive projects 2. Doesn’t differentiate between lending and borrowing 3. Could have multiple rates of return Investment Timing Ex: Purchasing a computer anytime over next 5 years Cost of capital of 10% Hint: highest NPV - Initial investment + PV savings = NPV at year of purchase NPV at year of purchase / (1+r)^n = NPV today
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

Notes 4-9-08 (CH7, Review Exam) - 4/9/2008 Notes Ch 7 NPV =...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online