Net Present Value and Other Investment Criteria

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Net Present Value and Other Investment Criteria
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What is the Criterion?

• Maximizing Firm Value

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What is the Criterion?

• Net Present Value

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What is the Criterion?

• Profitability Index

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What is the Criterion?

• Internal Rate of Return

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What is the Criterion?

• Pay Back
• Average Accounting Rate of Return

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Problem 17
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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
• Time Cum CF (A) Cum CF (B)
• 1 8696 8696
• 2 27599 12476
• 3 44037 14449
• 4 261303 25884

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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 Index Project A Project B
• _at_ 15
• IRR Project A Project B

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Problem 17