CH-9 - GSB 531 Managerial Finance Chapter 9 Net Present...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 GSB 531 Managerial Finance Chapter 9 Net Present Value and Other Investment Criteria Net Present Value An investment is worth undertaking if it creates value for its owners. Future Payoffs PV of Payoffs Invest- ment Costs The difference between an investment’s market value (PV of future payoffs) and its costs is called the net present value (NPV) of the investment. Estimating Net Present Value
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2 The Payback Rule Payback period: length of time to recover the initial investment. An investment is acceptable if its payback period is less than some pre-specified number of years. Payback period is exactly two years. Calculating Payback Periods Pros and Cons of the Payback Rule Time value of money is ignored The cutoff period is arbitrary Cash flow after the cutoff period is ignored Tend to accept short-term investments that pay back quickly and reject long-term projects that pay back slowly.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern