COM 371 Chapter 9 Notes

COM 371 Chapter 9 Notes - COM371Chapter9Notes NetPresent...

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COM 371 Chapter 9 Notes Net Present  Value The difference between an investment’s market value and its cost. Measure of how much value is created or added today. The capital budgeting process can be viewed as a search for investments with  positive net present values. Estimating  NPV Begin by trying to estimate the future cash flows that we expect the business to  produce. Then apply our basic discounted cash flow procedure to estimate the  present value of those cash flows. Estimate NPV as the difference between the  present value of the cash flows and the cost of the investment.  -  known as discounted cash flow (DCF) Discounted  Cash Flow  (DCF) The process of valuing an investment by discounting its future cash flows. NPV Rule An investment should be accepted if the NPV is positive and rejected if it is  negative. - if NPV=0, the investment decision would be indifferent The Payback  Rule The length of time it takes to recover our initial investment is the payback. Definition:  based on the payback rule, an investment is acceptable if its  calculated payback is less than some prescribed number of years. Analysis:
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This note was uploaded on 07/25/2011 for the course BUS 371 taught by Professor Franz during the Fall '10 term at University of Victoria.

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COM 371 Chapter 9 Notes - COM371Chapter9Notes NetPresent...

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