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Topic 1 Npv And Other Investment Creteria

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Net Present Value and Other Investment Criteria
Outline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Good Decision Criteria ,[object Object],[object Object],[object Object],[object Object]
Project Example Information ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Net Present Value ,[object Object],[object Object],[object Object],[object Object],[object Object]
NPV – Decision Rule ,[object Object],[object Object],[object Object]
Computing NPV for the Project ,[object Object],[object Object],[object Object],[object Object],[object Object]
Decision Criteria Test - NPV ,[object Object],[object Object],[object Object],[object Object]
Calculating NPVs with a Spreadsheet ,[object Object],[object Object],[object Object],[object Object],[object Object]
Payback Period ,[object Object],[object Object],[object Object],[object Object],[object Object]
Computing Payback For The Project ,[object Object],[object Object],[object Object],[object Object],[object Object]
Decision Criteria Test - Payback ,[object Object],[object Object],[object Object],[object Object]
Advantages and Disadvantages of Payback ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Discounted Payback Period ,[object Object],[object Object],[object Object]
Computing Discounted Payback for the Project ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Decision Criteria Test – Discounted Payback ,[object Object],[object Object],[object Object],[object Object]
Advantages and Disadvantages of Discounted Payback ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Average Accounting Return ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Computing AAR For The Project ,[object Object],[object Object],[object Object],[object Object],[object Object]
Decision Criteria Test - AAR ,[object Object],[object Object],[object Object],[object Object]
Advantages and Disadvantages of AAR ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Internal Rate of Return ,[object Object],[object Object],[object Object]
IRR – Definition and Decision Rule ,[object Object],[object Object]
Computing IRR For The Project ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
NPV Profile For The Project IRR = 16.13%
Decision Criteria Test - IRR ,[object Object],[object Object],[object Object],[object Object]
Advantages of IRR ,[object Object],[object Object],[object Object]
Summary of Decisions For The Project Reject Discounted Payback Period Accept Internal Rate of Return Reject Average Accounting Return Reject Payback Period Accept Net Present Value Summary
Calculating IRRs With A Spreadsheet ,[object Object],[object Object],[object Object],[object Object],[object Object]
NPV Vs. IRR ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
IRR and Non-conventional Cash Flows ,[object Object],[object Object],[object Object]
Another Example – Non-conventional Cash Flows ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
NPV Profile IRR = 10.11% and 42.66%
Summary of Decision Rules ,[object Object],[object Object],[object Object]
IRR and Mutually Exclusive Projects ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Example With Mutually Exclusive Projects The required return for both projects is 10%. Which project should you accept and why? 60.74 64.05 NPV 22.17% 19.43% IRR 200 325 2 325 325 1 -400 -500 0 Project B Project A Period
NPV Profiles IRR for A = 19.43% IRR for B = 22.17% Crossover Point = 11.8%
Conflicts Between NPV and IRR ,[object Object],[object Object],[object Object],[object Object],[object Object]
Profitability Index ,[object Object],[object Object],[object Object]
Advantages and Disadvantages of Profitability Index ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Capital Budgeting In Practice ,[object Object],[object Object],[object Object]
Summary – Discounted Cash Flow Criteria ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Summary – Payback Criteria ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Summary – Accounting Criterion ,[object Object],[object Object],[object Object],[object Object],[object Object]
Quick Quiz ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

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Topic 1 Npv And Other Investment Creteria

  • 1. Net Present Value and Other Investment Criteria
  • 2.
  • 3.
  • 4.
  • 5.
  • 6.
  • 7.
  • 8.
  • 9.
  • 10.
  • 11.
  • 12.
  • 13.
  • 14.
  • 15.
  • 16.
  • 17.
  • 18.
  • 19.
  • 20.
  • 21.
  • 22.
  • 23.
  • 24.
  • 25. NPV Profile For The Project IRR = 16.13%
  • 26.
  • 27.
  • 28. Summary of Decisions For The Project Reject Discounted Payback Period Accept Internal Rate of Return Reject Average Accounting Return Reject Payback Period Accept Net Present Value Summary
  • 29.
  • 30.
  • 31.
  • 32.
  • 33. NPV Profile IRR = 10.11% and 42.66%
  • 34.
  • 35.
  • 36. Example With Mutually Exclusive Projects The required return for both projects is 10%. Which project should you accept and why? 60.74 64.05 NPV 22.17% 19.43% IRR 200 325 2 325 325 1 -400 -500 0 Project B Project A Period
  • 37. NPV Profiles IRR for A = 19.43% IRR for B = 22.17% Crossover Point = 11.8%
  • 38.
  • 39.
  • 40.
  • 41.
  • 42.
  • 43.
  • 44.
  • 45.