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Unformatted text preview: 1 Capital Budgeting: Decision Rules P’ O Tuitional BBA Business Finance Expected Aftertax Net CF Year Project S Project L1,0001,000 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
 Miko

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