L10-ch09 - Chapter 9 Common Criteria for Finding an...

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Click to edit Master subtitle style Chapter 9 Common Criteria for Finding an Acceptable Project 11
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Situation a) Have projects in mind b) Know the require rate of return c) Know investment horizon (how long to invest) SO, WE WILL NOW Look at ways to help us tell which project is a good project to invest. 22
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Decision-making Criteria in Capital Budgeting How do we decide if a capital investment project should be accepted or rejected? 33
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Common Ways to Evaluate 1) Payback Period (PP) 2) Net Present Value (NPV) 3) Profitability Index (PI) 4) Internal Rate of Return (IRR) 44
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Ideally, the evaluation method should: a) include all cash flows that occur during the life of the project, b) consider the time value of money , 55
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Payback Period How long will it take for the project to generate enough cash to pay for Payback period = - [ / ] 0 1 2 3 4 5 6 (500) 150 150 150 150 150 150 (350 ) (200 ) (50 ) 100 Payback period = 3.33 years 4 100 150 66
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Is a 3.33 year payback period good? Is it acceptable?
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L10-ch09 - Chapter 9 Common Criteria for Finding an...

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