ACCT 201 Lecture Notes - Lecture 17: Net Present Value, Payback Period, Capital Budgeting
Document Summary
Dr. ron a. rhoades (cid:494)da bear and a purveyor of great pre-(cid:887)99(cid:886)(cid:495)s music. We continue our exploration of the methods used by firms to evaluate which projects to undertake. information but is quite limited. The pbp method does not take into consideration cash flows after the pbp is met, nor does it consider the required rate of return of the investment. The decision about where to set the maximum pbp is also somewhat arbitrary. )n our prior lesson we explored the (cid:498)payback period(cid:499) (cid:523)pbp(cid:524) method, which provides useful. We also explored the (cid:498)net present value(cid:499) (npv) method a much better method because it takes into account the time value of money (tvm). And we then explored how projects can be compared by using a ratio known as the profitability index (pi). We explore the internal rate of return (irr). This is the rate of return that a firm projects to receive if the investment in a project is made.
