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Unformatted text preview: 1 Capital Budgeting: Decision Rules P’ O Tuitional BBA Business Finance Expected After-tax Net CF Year Project S Project L-1,000-1,000 1 500 100 2 400 300 3 300 400 4 100 600 ขอแทรกเนื้อหา : NPV Profiles • A graph which plots a project’s NPV against the discount rates. • To construct NPV profiles, first note that at zero discount rate, the NPV s = $300, and NPV L =$400. • Next, we calculate the NPVs at three discount rate, 5, 10, and 15 percent, and plot these values. • Recall that IRR make NPV=0, therefore, the point where its NPV profile crosses the horizontal axis indicates a project’s IRR. NPV Profiles: graphing Discount Rate NPV S NPV L 0% $300 $400 5% 10% 15% 2 • Conflicts: – Project L has the higher NPV at low discount rate (WACC), while Project H is so cute……. ,While Project S has higher NPV if the discount rate (WACC) is greater than the 7.2% crossover rate. 1. Calculate Payback period and Discounted Payback period. Payback period defined as the expected number of years required to recover the original investment. 2. Calculate NPV 3. IRR - If both projects have a cost of capital of 10%, then the IRR rule indicates that we should …………… 4. MIRR for Projects S (WACC = 10%)- MIRR assume that cash inflows are reinvested at the cost of capital, while...
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This note was uploaded on 10/13/2010 for the course BUS 1231 taught by Professor Miko during the Spring '10 term at UC Riverside.
- Spring '10