Chapter 5 lecture

Xls file worksheet page 94 95 22 another npv example

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Unformatted text preview: .05 (1.05) 2 (1.05) 3 = −$1,000 + $285.71 + $317.46 + $388.73 = −$8.10 NPV = −$1,000 + rate CF PV(CF) 5% 0 1 2 3 $ (1,000.00) $ 300.00 $ 350.00 $ 450.00 $ (1,000.00) $ 285.71 $ 317.46 $ 388.73 NPV $ (8.10) Reference (Example): File: Pfe_chap05.xls File: Worksheet: “page 94-95” 22 Another NPV example • Using both “the long way” and the NPV Using function in Excel, calculate the NPV of the following project, using an 8% discount rate following 23 Discount rate & NPV – Investment profile shows how sensitive the Investment NPV is to the discount rate determination NPV • shows the maximum rate leading to NPV > 0 • gives a “cross-over rate” when comparing two gives projects @8%: CF projects PV(CF) CFB PV(CF) A 0 -100000 1 30000 2 30000 3 30000 4 30000 5 30000 PV(inflows) NPV 27,778 25,720 23,815 22,051 20,417 119,781 19,781 -100000 15000 15000 15000 15000 105000 13,889 12,860 11,907 11,025 71,461 121,143 21,143 24 Investment Profile NPV(A)>0 , r<16% • Comparing Investments A & B NPV(B)>NPV(A), r<9% $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 2 0% 1 9% 18 % 17 % 16 % 15 % 14 % 13% 12% 11% 10% 9% 8% 7% 6%...
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This document was uploaded on 02/09/2014.

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