2-18 Notes BF - Business Finance Notes Things to know(NPV o Net Present Value o Payback Period o Discounted Payback Period o Average Accounting Return o

2-18 Notes BF - Business Finance Notes Things to know(NPV o...

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2/18/07 Business Finance Notes Things to know (NPV) o Net Present Value o Payback Period o Discounted Payback Period o Average Accounting Return o Internal Rate of Return (IRR) Investment = PV (CF, IRR) Internal Rate of Return o NPV and IRR will generally give us the same decision If not, go w/ NPV o Sometimes they won’t Non-conventional cash flows Cash flows change signs more than once Mutually exclusive projects Initial investments are substantially different Timing of cash flows is substantially different o IRR and Mutually Exclusive Projects Mutually exclusive projects If you choose one, you can’t choose the other Intuitively you would use the following decision rules:

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