BU393 Study Guide - Final Guide: Capital Cost Allowance, Net Present Value, Tax Deduction
Document Summary
Compares value of a dollar today to value of that dollar at some future point. Discounts a time series of cash inflows and ouflows back at time 0 and sums them. Discounts all cash flows using cost of capital. Weighted cost of firm"s cost for each component in the capital structure (debt, equity) Suppose a firm"s choosing if they should take a project. The project required an initial investment of and generates cash flows of in year 1, in year 2, and in year 3. Irr: rate that equates pv of all cash flows to the initial investment. Higher irr for investment project = more attractive. Lower irr for financing project = more attractive. Firm is considering project that requires initial investment of . Project will last 3 years and generate cash flows of in year 1, in year 2, and. The firm has a cost of capital of 12%.
