Management and Organizational Studies 2310A/B Chapter Notes - Chapter 8: Opportunity Cost, Net Present Value, Project A

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Danny Morrison

Document Summary

The npv profile: graphs the projects npv over a range of discount rates. If the return on the investment opportunity you are considering is greater than the return on other alternatives in the market, you should undertake the opportunity: take any investment where irr exceeds opportunity cost of capital. You can see the npv is positive when the cost of capital cost beyond irr. Hence conflicting: for cases when expenses occur initially cash received later irr works, when cash upfront payback, ignore the forgone cash flows occurred later. As if borrowing money, you prefer as low a rate as possible. Rate at which u borrow should be less than the cost of capital. Irr rule must be reverset for projects like this. Multiple irrs in year 10 additional payment of 600,000: two irrs- two values or r that set the npv equal to zero.