16642 Lecture Notes - Lecture 5: Capital Budgeting, Cash Flow, Net Present Value
Document Summary
Contents: capital budgeting, discounted cash flow criteria: npv v irr, the general principles in selecting capital-budgeting techniques. What is capital budgeting: the decision-making process with respect to investment in fixed assets. It involves measuring the incremental cash flows associated with investment proposals and evaluating the worth of these cash flows. Investment evaluation techniques: capital budgeting decision-making criteria are based on the time value of money. Investment valuation techniques include: net present value (npv, internal rate of return (irr) Decisions: npv > 0 accepted, npv = 0, npv < 0 rejected. A project costs million and yields million in one year when the discount rate is. Since the npv of the project is negative, it should be rejected. A company is considering whether it should outlay ,000 for a property which is expected to generate ,000 each year for the next five years. What is the net present value of the project, given a discount rate of 10%
