finance_mngmt_chap9

finance_mngmt_chap9 - Chapter 9: NET PRESENT VALUE AND...

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Chapter 9: NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA NPV - the difference between an investment's market value and its cost Payback period = Cost of project / Annual Cost of Investment Problem : An investment project provides cash inflows of $1,020 per year for 12 years. If the initial cost is $5,100, the project payback period is ___ years. If the initial cost is $5,712, the project payback period is ____ years. If the initial cost is $13,260, the project payback period is ____ years. Answer : 5, 5.6, 0 Based on the IRR rule, an investment is acceptable if the IRR (actual return) exceeds the required return. It should be rejected otherwise. The IRR on an investment is the required return that results in a zero NPV when it is used as the discount rate. Mutually Exclusive Projects: Crossover rate , by definition, is the discount rate that makes the NPVs of two projects equal. Trial and Error to find R! Consider the following two independent investments:
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This note was uploaded on 04/06/2012 for the course FIN 300 taught by Professor Longo during the Fall '10 term at Rutgers.

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finance_mngmt_chap9 - Chapter 9: NET PRESENT VALUE AND...

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