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Chapter 5 lecture

# 00 8000 6000 4000 2000 8 5 7 5 6 5 5 5 4 5 3 5 4000

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Unformatted text preview: 5% 4% 3% 2% 1% \$(10,000) 0% \$- \$(20,000) \$(30,000) 25 Comparing two projects Comparing • • • Reference (Example): Reference File: Pfe_chap05.xls Worksheet: “page 96” 26 Internal Rate of Return NPV = −\$1,000 + \$300 \$350 \$450 + + =0 2 3 1 + IRR (1 + IRR) (1 + IRR) \$100.00 \$80.00 \$60.00 \$40.00 \$20.00 8. 5% 7. 5% 6. 5% 5. 5% 4. 5% 3. 5% (\$40.00) (\$60.00) 2. 5% 0. 5% (\$20.00) 1. 5% \$0.00 (\$80.00) (\$100.00) 27 Internal Rate of Return – And another way to get there using “Goal Seek” And option option Reference: Reference: File: OtherPracticeProblems_Chp5.xls File: Worksheet: “IRR” 28 NPV, IRR & Decisionmaking • In independent investment decisions, In NPV > 0 and IRR > r will always give consistent answers consistent • When ranking mutually exclusive When investment opportunities, in general, we choose the opportunities with highest NPV or IRR, depending on which method is being used 29 Amortization Tables – Amortized loans are paid off in equal Amortized installments installments – In an amortization table, we can track the In principal and interest portions of each payment p...
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