25557 Chapter Notes - Chapter 6 & 9: Net Present Value, 0 (Year), Opportunity Cost
Document Summary
Estimating the cash flows, the npv and the cost of capital of a project. If the timing decision does not affect other future decisions that you may wish to make, you should choose the timing with the highest npv. The npv of the investment is maximised if the project commences as soon as the rate of increase in value drops below the cost of capital. Deciding between two machines that perform the same function may be complicated by different replacement lives. For mutually exclusive projects, we should compare the assets on their equivalent annual cash. Flow (eac) if the choice today will affect future decisions. The rst annuity payment is at the end of the rst period. There are n payments in the annuity series of in nite number payments in the perpetuity. Re ects the opportunity cost of capital for investment in the rm as a whole (wacc)
