K10 5 15 20 10 discount rate certified financial

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Unformatted text preview: te ($) Certified Financial Controller CFC 35 25 C. Project Life Differences Let us compare a long life (X) project us compare long (X) project and a short life (Y) project. NET CASH FLOWS Project X Project Y END OF YEAR 0 1 -$1,000 0 -$1,000 2,000 2 0 0 3 3,375 0 71 Certified Financial Controller CFC Project Life Differences Calculate the PBP, IRR, NPV@10%, the PBP IRR NPV@ and PI@10%. Which project is preferred? Why? Project NPV PI X 50% $1,536 2.54 Y 72 IRR 100% $ 818 1.82 Certified Financial Controller CFC 36 Another Way to Look at Things 1. Adjust cash flows to a common terminal cash flows to common terminal year if project “Y” will NOT be replaced. NOT Compound Project Y, Year 1 @10% for 2 years. Year 0 2 3 –$1,000 CF 1 $0 $0 $2,420 Results: IRR* = 34.26% NPV = $818 *Lower IRR from adjusted cash-flow stream. X is still Best. 73 Certified Financial Controller CFC Replacing Projects with Identical Projects 2. Use Replacement Chain Approach (Appendix B) when project “Y” will be replaced. 0 1 –$1,000 $2,000 –1,000 –$1,000 Results: 2 3 $2,000 ...
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This note was uploaded on 05/28/2013 for the course FINANCE economy taught by Professor Nill during the Fall '12 term at Bronx School Of Law And Finance.

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