TMP 120 Lecture Notes - Lecture 20: Net Present Value, Cash Flow, Discount Window
Document Summary
Uses: you expect sales will grow so you will need more product. Is it better to build a plant or rent the capacity from someone else: you want to buy another company and merge it with yours. What else could you do with the money: we"ve developed a new technology. It will take many years and a lot of money to bring to market. Dcf steps figures of merit: steps, estimate the relevant cash flows, calculate the rate of return for the investment, compare the returns to your acceptance criterion. Payback period ignores cash flows after payback, and time value of money; can be useful as a rough guide to project risk but be careful. Net present value (npv): difference between present value of cash inflows and the present value of cash outflows. Time sensitive to reliability of future cash inflows. Used to analyze profitability of a project: 2.
