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Unformatted text preview: Avg NI/Initial Investment = 1800/20,000 = 0.09 = 9% 1. What is NPV?  Net Present Value NPV = 20,000 + 6800 (1  (1/1.12) 4 //.12)20,000 + 6800 (3.037)20,000 [PV of cash outflow] + 20,652 [PV of cash inflow] = 652 [positive, so accepted] Accept Reject NPV +, >0, <0 IRR >Hurdle Rate <Hurdle Rate PI >1 <1 1. What is the profitability index? PI = PV of CI / PV of CO = 20,652/20,000 = 1.0326 [greater than 1, so accepted] 1. What is the IRR? [Internal Rate of Return] 0 = 20,000 + 6800(2.941)  for n = 4, solving for r = N = 4, 12%/3.3037…. 15%/2.855…. 14%/2.913…. 13%/2.974 a. 111 Hurdle Rate = K, cost of Capital...
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 Spring '08
 SKENDER
 Taxes, Investing, Net Present Value, Internal rate of return, hurdle rate

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