Shibin Koshy

Shibin Koshy - Shibin Koshy FIN 301 DR. Novack 4/14/2011 1....

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Shibin Koshy FIN 301 DR. Novack 4/14/2011 1. Advantages and Disadvantages of: a. Payback Period: Advantages: It is simple to compute and easy to understand. It handles investment risk effectively. Disadvantages: It does not recognize the Time Value of Money. It ignores profitability of an investment. b. Profitability Index: Advantages: It uses time value of money. It is similar to the NPV, and, is easy to interpret. Disadvantage: Similar to the IRR, it may give the wrong decision when choosing between mutually exclusive projects. c. Internal Rate of Return Advantage: It takes into account the time value of money. Disadvantages: It can generate two answers for the same input. (if there are more than one negative cash flow years). IRR can pick the wrong project when choosing between two mutually exclusive projects. d. Net Present Value Advantage: NPV is the most widely accepted tool for analyzing projects. It takes into account the time value of money. Disadvantage:
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This note was uploaded on 03/27/2012 for the course EC 4343 at Penn State.

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Shibin Koshy - Shibin Koshy FIN 301 DR. Novack 4/14/2011 1....

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