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# L_10_ - Lecture 10 Net Present Value and Other Investment...

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Lecture 10 Net Present Value and Other Investment Criteria Lecture Organization Annuity and perpetuity Net Present Value The Payback Rule The Discounted Payback IRR

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Example: Perpetuity Calculations What is the present value of cash flow of \$1000 per year forever . This is called a perpetuity PV of perpetuity is easy to calculate: PV = PV= 0 \$1,000 \$1,000 \$1,000 Year, t Perpetuity ….. \$1,000
Growing Perpetuity Calculations What is the present value of cash flow of the growing perpetuity PV of perpetuity is easy to calculate: PV of Growing Perpetuity = PV= 0 \$1,000 \$1,000(1+g) \$1,000*(1+g) 2 Year, t ….. \$1,000(1+g) 3

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The Capital Budgeting Decisions: "What Assets Should We Buy?" “What investment Should We Choose? Is given investment project worthwhile to undertake? There are several approaches (rules) to answer these Questions: Net Present Value Payback Rule (Ordinary and Discounted Payback) Profitability Index Internal Rate of Return
The NPV Rule Net present value Net present value rule

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