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cfc session 7 ch8

Why project s 100 l 66 irr npv 25 pi 231 331 29132

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Unformatted text preview: is preferred? Why? Project S 100% L 66 IRR NPV 25% \$ PI 231 3.31 \$29,132 1.29 Certified Financial Controller CFC 33 B. Cash Flow Pattern Let us compare a decreasing cash-flow (D) us compare decreasing (D) project and an increasing cash-flow (I) project. NET CASH FLOWS Project D Project I END OF YEAR 0 1 -\$1,200 1,000 -\$1,200 100 2 500 600 3 100 1,080 67 Certified Financial Controller CFC Cash Flow Pattern Calculate the IRR, [email protected]%, the IRR [email protected] and [email protected]%. Which project is preferred? Project Project IRR NPV PI D \$198 1.17 1. I 68 23% 17% \$198 1.17 1. Certified Financial Controller CFC 34 600 Plot NPV for each NPV for each project at various discount rates. 400 Project I 200 [email protected]% IRR Project D 0 -200 Net Present Value (\$) Examine NPV Profiles 0 5 69 10 15 20 Discount Rate (%) 25 Certified Financial Controller CFC Net Present Value (\$) -200 0 200 400 600 Fisher’s Rate of Intersection 0 70 At k<10%, I is best! k<10% Fisher’s Rate of Intersection At k>10%, D is best! k>10% 5 15 20 10 Discount Ra...
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