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Unformatted text preview: Depreciationnot a real loss an onpaper loss Problem setearnings depreciation = appropriate calc. for taxes Earnings after taxes + depreciation = cash flow Payback methodwhat ery1 wants but not that greatif I spent 10k today I should get it back in cashflows IRRcalculate interest rate with cashflows and inflows Yield on an investment use present value of $PVannuity = A x PVifaPVa/A = PVifa 1000/244 = 4.14.1 for 5 years = 7% (table D) If cashflows = unevenaverage them Net Present Value (NPV)present value of inflows minus present value of outflowsinclude discountstake the sum and multiply it by the present value on chart = w/discount Mutually exclusive optionstake the highest one Multiple optionsexclude anything that doesnt meet your desire RiskIRR & PB method risk is assumed =NPV: accounts for risk by increasing discount ratenegative result = not worth it...
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This note was uploaded on 06/15/2011 for the course KIN 356 taught by Professor Warner during the Fall '09 term at University of Texas at Austin.
 Fall '09
 WARNER

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