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Pitfalls 1 investment timing decision choose

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Unformatted text preview: itfalls 1. Investment timing decision – choose investment date with highest NPV today 2. Choice between long- and short-lived equipment – select the option with the lowest annual costs using the equivalent annual annuity method 3. The replacement problem 1. Ignores cash flows beyond payback period 2. Ignores time value of money 3. Tends to reject projects with longer lives 4. Cutoff period is somewhat arbitrary 1. Lending or borrowing? – IRR will give you the same rate whether or not you’re lending or borrowing, but the rule is reversed for bor...
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