FIN 3504 Chapter Notes - Chapter 9: Discounted Cash Flow, Cash Flow, Net Present Value
Document Summary
* with the irr, we try to find a single rate of return that summarizes the merits of a project. Irr= discount rate that makes npv equal to zero. Irr is sometimes called the discounted cash flow return net present value profile- a graphical representation of the relationship between an investment"s npvs and various discount rates. * when these conditions are not met, problems can arise problems with the irr. * multiple rates of return the possibility that more than one discount rate will make the npv of an investment zero. Not the irr!! calculating crossover rate the discount rate that makes the npvs of two projects equal taking the difference in the cash flows and calculating the irr using the difference redeeming qualities of the irr. * profitability index benefit-cost ratio present value of the future cash flows divided by the initial investment.
