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PROJECT INTERACTIONS

PROJECT INTERACTIONS. Erosion e.g., diet and regular soft drinks Enhancement e.g., “The Lion King” & merchandising Contingent Projects e.g., need road to develop mine Mutually Exclusive Projects e.g., replacement equipment. PRESENT VALUE OF AN ANNUITY. ANNUITY PV (CONT.).

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PROJECT INTERACTIONS

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  1. PROJECT INTERACTIONS • Erosion e.g., diet and regular soft drinks • Enhancement e.g., “The Lion King” & merchandising • Contingent Projects e.g., need road to develop mine • Mutually Exclusive Projects e.g., replacement equipment

  2. PRESENT VALUE OF AN ANNUITY

  3. ANNUITY PV (CONT.) • Given annuity PMT, r and n, we can find PV • Given annuity PV, r and n, we can find PMT • EAC technique converts an uneven stream into an annuity with same PV

  4. INFLATION & CAPITAL BUDGETING

  5. INFLATION & CAP. BUD. (cont.) • To calculate NPV with inflation: • Discount nominal cash flows at nominal discount rate OR • Discount real cash flows at real discount rate • Watch out for depreciation tax shields

  6. INVESTMENT OPTIONS • Be aware of future choices (options) that might be associated with projects - these can add to the value of the project • Future investment options • Abandonment option • Postponement option

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