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Unformatted text preview: • Net working capitalCurrent Assets minus Current Liabilities • The Net Present Value ( NPV ) of an investment is the present value of the expected cash flows, less the cost of the investment. o NPV better than IRR o IRR pick one project, mutually exclusive, multiple IRRs needed, scale problems o Payback doesn’t consider discounting, time value of money, risk, etc. • FV = C ×(1 + r ) T • Where C is cash flow at date 0, r is the appropriate interest rate, and T is the number of periods over which the cash is invested. • Compounding interest: T m m r C FV × + × = 1 (m is times compounded annual) • EAR= m n m r × + 1 • the annual rate that would give us the same endofinvestment wealth • FV = C × e rT • Perpetuity A constant stream of cash flows that lasts forever • r C PV = • Growing perpetuity A stream of cash flows that grows at a constant rate forever • g r C PV = • Annuity A stream of constant cash flows that lasts for a fixed number of periods • + = T r r C PV ) 1 ( 1 1 • Growing annuity A stream of cash flows that grows at a constant rate for a fixed number of periods • + + = T r g g r C PV ) 1 ( 1 1 • CH. 5 BondsCH....
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This note was uploaded on 10/20/2010 for the course FINA 127 taught by Professor Arthurj.wilson during the Spring '10 term at GWU.
 Spring '10
 ArthurJ.Wilson
 Finance, Net Present Value

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