Criteria_Video_notes

Criteria_Video_notes - purchase the machine? Example #3 You...

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Decision Criteria Practice Problems FINC 3630 Yost Example #1 You plan to buy a machine that will cost $2,000 today and produce cash flows of $1,500 in each of the next two years. The salvage value will be zero. The cost of capital is 15 percent. What is the NPV? Should you buy the machine? Example #2 You plan to buy a machine that will cost $2,000 today and produce the following cash flows: $500 in year 1, $750 in year 2, $300 in year 3, $1,000 in year 4, and $5,000 in year 5. Our firm only accepts projects with a payback of 4 years or less. What is the payback period? Should you
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Unformatted text preview: purchase the machine? Example #3 You plan to buy a machine that will cost $2,000 today and produce cash flows of $1,500 in each of the next two years. The salvage value will be zero. The cost of capital is 15 percent. What is the IRR? Should you buy the machine? Example #4 You plan to buy a machine that will cost $2,000 today and produce cash flows of $1,500 in each of the next two years. The salvage value will be zero. The cost of capital is 15 percent. What is its profitability index? Should you buy the machine? VIDEO SLIDES...
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This note was uploaded on 12/11/2011 for the course FINC 3630 taught by Professor Jensen,m during the Summer '08 term at Auburn University.

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