Chap006 - Chapter 6 NET PRESENT VALUE AND OTHER INVESTMENT RULES SLIDES 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17

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Chapter 6 NET PRESENT VALUE AND OTHER INVESTMENT RULES SLIDES 6.1 Key Concepts and Skills 6.2 Chapter Outline 6.3 Why Use Net Present Value? 6.4 The Net Present Value (NPV) Rule 6.5 Calculating NPV with Spreadsheets 6.6 The Payback Period Method 6.7 The Payback Period Method 6.8 The Discounted Payback Period 6.9 Average Accounting Return 6.10 Average Accounting Return 6.11 The Internal Rate of Return 6.12 Internal Rate of Return (IRR) 6.13 IRR: Example 6.14 NPV Payoff Profile 6.15 Calculating IRR with Spreadsheets 6.16 Problems with IRR 6.17 Mutually Exclusive vs. Independent 6.18 Multiple IRRs 6.19 Modified IRR 6.20 The Scale Problem 6.21 The Timing Problem 6.22 The Timing Problem 6.23 Calculating the Crossover Rate 6.24 NPV versus IRR 6.25 The Profitability Index (PI) 6.26 The Profitability Index 6.27 The Practice of Capital Budgeting 6.28 Example of Investment Rules 6.29 Example of Investment Rules 6.30 Example of Investment Rules 6.31 NPV and IRR Relationship 6.32 NPV Profiles 6.33 Summary – Discounted Cash Flow 6.34 Summary – Payback Criteria 6.35 Summary – Accounting Criterion 6.36 Quick Quiz
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A-86 CHAPTER 6 CHAPTER WEB SITES Section Web Address 6.1 www.missouribusiness.net CHAPTER ORGANIZATION 6.1 Why Use Net Present Value? 6.2 The Payback Period Method Defining the Rule Problems with the Payback Method Managerial Perspective Summary of Payback 6.3 The Discounted Payback Period Method 6.4 The Average Accounting Return Method Defining the Rule Analyzing the Average Accounting Return Method 6.5 The Internal Rate of Return 6.6 Problems with the IRR Approach Definition of Independent and Mutually Exclusive Projects Two General Problems Affecting Both Independent and Mutually Exclusive Projects Problems Specific to Mutually Exclusive Projects Redeeming Qualities of IRR A Test 6.7 The Profitability Index Calculation of Profitability Index 6.8 The Practice of Capital Budgeting ANNOTATED CHAPTER OUTLINE Slide 6.0 Chapter 6 Title Slide Slide 6.1 Key Concepts and Skills Slide 6.2 Chapter Outline Lecture Tip: A logical prerequisite to the analysis of investment opportunities is the creation of investment opportunities. Unlike the field of
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CHAPTER 6 A-87 investments, where the analyst more or less takes the investment opportunity set as a given, the field of capital budgeting relies on the work of people in the areas of engineering, research and development, information technology, and others for the creation of investment opportunities. As such, it is important to remind students of the importance of creativity in this area, as well as the importance of analytical techniques. 6.1. Why Use Net Present Value? Net present value – the difference between the market value of an investment and its cost. Estimating cost is usually straightforward; however, finding the market value of assets can be tricky. The principle is to find the market price of comparables. Slide 6.3
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This note was uploaded on 12/21/2011 for the course NIKA 101 taught by Professor Temur during the Spring '11 term at Acton School of Business.

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Chap006 - Chapter 6 NET PRESENT VALUE AND OTHER INVESTMENT RULES SLIDES 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17

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