Chapter 10 lecture for class live

Chapter 10 lecture for class live -...

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 5/5/11 In this chapter we will see the following methods  of capital budgeting: Payback Period Discounted Payback Period NPV (Net Present Value) PI (Profitability Index) IRR (Internal Rate of Return) MIRR (Modified Internal Rate of Return-not in text) Chapter 10: Capital Budgeting 
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 5/5/11 Suppose you have the following cash flows from a  project: T=0 -$10,000 T=1 7000, T=2 8000, T=3 3000 Calculation of Payback Period Year CF CCF 0 -10000 -10000 1   7000   -10000+7000 = -3000 Payback Period (Example)
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 5/5/11 Ignores TMV Ignores cash flows occurring after payback. Could give incorrect answers THEN WHY DO PEOPLE STILL USE IT? Disadvantages of Payback 
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 5/5/11 Using the same project as earlier.  We use the  company’s cost of capital (say 10%) as the  discount rate, calculate PV of Cash flows before  we calculate Payback. Year
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Chapter 10 lecture for class live -...

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