HTA 602 Lecture Notes - Lecture 9: Payback Period, Cash Flow, Net Present Value

• School: Ryerson University
• Department: Hospitality and Tourism Management
• Course: HTA 602
• Professor: Bernard Mc Evoy

Document Summary

We need to ask ourselves the following questions when evaluating decision criteria. Be able to compute the net present value and understand why it is the best decision criterion. Be able to compute payback and discounted payback and understand their shortcomings. Understand accounting rates of return and their shortcomings. Be able to compute the internal rate of return and understand its strengths and weaknesses. The difference between the market value of a project and its cost. The first step is to estimate the expected future cash flows. The second step is to estimate the required return for projects of this risk level. The third step is to find the present value of the cash flows and subtract the initial investment. Year 1: cf = 63,120; ni = 13,620. Year 2: cf = 70,800; ni = 3,300. Year 3: cf = 91,080; ni = 29,100. If the npv is positive, accept the project.