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Net Present Value and Other Investment Criteria

Net Present Value and Other Investment Criteria. What is the Criterion?. Maximizing Firm Value. What is the Criterion?. Net Present Value. What is the Criterion?. Profitability Index. What is the Criterion?. Internal Rate of Return. What is the Criterion?. Pay Back

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Net Present Value and Other Investment Criteria

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  1. Net Present Value and Other Investment Criteria

  2. What is the Criterion? Maximizing Firm Value

  3. What is the Criterion? • Net Present Value

  4. What is the Criterion? • Profitability Index

  5. What is the Criterion? • Internal Rate of Return

  6. What is the Criterion? • Pay Back • Average Accounting Rate of Return

  7. Problem 17

  8. Problem 17 Payback Period Cum CF(A) Cum CF(B) 1 10000 10000 2 35000 15000 3 60000 18000 4 440000 38000 Discounted Pay Back Discounted Discounted TimeCum CF (A) Cum CF (B) 1 8696 8696 2 27599 12476 3 44037 14449 4 261303 25884

  9. Problem 17 NPV, Profitability Index, and IRR • Discount Rate NPV (A) NPV (B) • 0.00% $ 260,000 $ 20,000 • 5.00% $ 186,422 $ 15,105 • 10.00% $ 128,080 $ 11,137 • 15.00% $ 81,303 $ 7,884 • 20.00% $ 43,418 $ 5,187 • 25.00% $ 12,448 $ 2,928 • 30.00% $ (13,087) $ 1,019 • 35.00% $ (34,308) $ (608) Profitability IndexProject A Project B @ 15% IRR Project A Project B

  10. Problem 17

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