FIN 3715 Chapter : NPV Other Investment Criteria 2012 PPT
Document Summary
Other investment criteria: j. ourso college of business. Capital budgeting decision: evaluation and choice of investment projects. = expected rate of return given up by investing in the project. Evaluate the projects using one of the following methods. Select a project using one of these selection rules. The net present value (npv) of a project is the present value of its cash flows discounted at the opportunity cost of capital minus initial investment n. Npv 0 accept the project if the. Therefore, if the projects are independent, accept both. Note: npv declines as r increases and npv rises as r decreases. The internal rate of return (irr) is the discount rate at which project npv=0. n t. The irr selection rule: accept the project if the. Therefore, if the projects are independent, accept both (both irrs > 10%). If the projects are mutually exclusive, accept project. Note: irr is independent of the required rate of return.