ADM 2341 Lecture Notes - Lecture 37: Investment, Sensitivity Analysis, Weighted Arithmetic Mean

• School: University of Ottawa
• Department: Administration
• Course: ADM 2341
• Professor: Abdenour Slaouti

Document Summary

Discounted cash flow techniques = capital budgeting techniques that consider both the time value of money and the estimated net cash flow from an investment. > the primary discounted cash flow technique is called net present value. A second method, discussed later in the chapter, is the internal rate of return net present value (npv) method. > involves discounting net cash flows to their present value and then comparing that present value with the capital outlay required by the investment. >the difference between these two amounts is referred to as the net present value (npv) > this rate, often called the discount rate or required rate of return. The npv decision rule is thus the following: a proposal is acceptable when net present value is zero or positive. > at either of those values, the rate of return on the investment equals or exceeds the required rate of return. >when net present value is negative, the project is unacceptable.