Table of Contents
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What is capital budgeting?
Steps
An Example of Mutually Exclusive Projects
Normal Cash Flow Project:
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What is the payback period?
Payback for Project L (Long: Most CFs in out years)
Project S (Short: CFs come quickly)
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What’s Project L’s NPV?
Calculator Solution
Rationale for the NPV Method
Using NPV method, which project(s) should be accepted?
Internal Rate of Return: IRR
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What’s Project L’s IRR?
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Rationale for the IRR Method
IRR Acceptance Criteria
Decisions on Projects S and L per IRR
Construct NPV Profiles
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To Find the Crossover Rate
Two Reasons NPV Profiles Cross
Reinvestment Rate Assumptions
Managers like rates--prefer IRR to NPV comparisons. Can we give them a better IRR?
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Why use MIRR versus IRR?
Pavilion Project: NPV and IRR?
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Logic of Multiple IRRs
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Accept Project P?
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