ACF1200 Lecture Notes - Lecture 12: Net Present Value, 0 (Year)
2 Aug 2018
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Document Summary
Risk and uncertainty present, decisions relate to future. Involve large cash outlays up front, returns received slowly (interest should be factored in) Dif cult to reverse without losses if things turn bad. Decisions are based on data available which may not be correct. Capital investment is considered: to increase income via a new investment, to invest in new technology to reduce costs, to replace old assets. The time it takes to recoup cash expended on. Compares initial cash out ow required for an investment. Accept if pp is within max length of time. Decision rule desired: npv > 0 worthwhile. Need projected future net cash ows per year: if npv < 0 not worthwhile and initial cash out ow of investment, if npv = 0 neither. Ignores the time value of money and ignores.
