Example npv pi a firm is considering a 5000 project

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Example-NPV, PIA firm is considering a $5,000 project that will generate an annual cash flow of $1,000 for the next 8 years. The cost of capital is 12% Determine the project's net present value (NPV) and whether or not to accept it.What is PI(Profitability Index)?21
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QuestionThe relevant discount rate for the following set of cash flows is 14 percent. What is the profitability index?
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QuestionA project has a net present value of zero. Which one of the following best describes this project?
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Internal rate of return (IRR)A single rate of returnthat summarizes a project’s meritsInternalin the sense that it is a rate that depends only on the project’s cash flows, not on rates offered elsewhere26
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Depends on our required return (i.e., minimally acceptable return) IRR RuleAccept project if IRR > required returnThere is a problem though…28
For more complicated projects (multiple periods and cash flows), intuitive reasoning won’t workAn alternative definition of IRR that works for both simple and complicated projects29
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