Lecture Notes on Time Value of Money Stefan Arping Amsterdam Business School University of Amsterdam 1 Roadmap • compounding and discounting • annuities and perpetuities • growing annuities and perpetuities • net present value • internal rate of return • real world complexities 2 Compounding • suppose you invest $100 for four years at 10% interest • how does your investment evolve over time? beginning year balance year 1 year 2 year 3 year 4 100.00 110.00 121.00 133.10 interest
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Shapiro: Chapter 2: Capital-Budgeting Principles and Techniques QUESTIONS 1. a. What is the relationship between accounting income and economic profit? Answer: Accounting income is calculated by taking revenues and subtracting all cash and non-cash expenses (such as depreciation). Accounting income also often recognizes losses for tax purposes as well, even though the economic loss may have taken place at another time. Economic profit is the sum of the present values of all the cash
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CASE 90: Northern Forest Products | Topic: Cost of Capital | Instructor: Dr. BILICI and Dr. Tran Phi Long | GROUP 11: Nguyễn Diệp An Hoàng Tiến Nhật Anh Phạm Nguyên Hạnh Đỗ Quang Huy Nguyễn Hoàng Long Nguyễn Phương Thủy Phạm Anh Thư Phan Thị Thu Trang Nguyễn Đức Trung Vũ Thị Minh Tú NOTHERN FOREST PRODUCT CASE STUDY Question 1: Explain the importance of risk adjustment in the capital budgeting allocation process by answering the following questions. a. Explain why risk adjustments
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identification of the relevant cash flows and evaluation of impact on Earnings per Share (EPS), payback period, Discounted cash flow (NPV analysis) and Internal Rate of Return (IRR), with respect to benchmark investment criteria for similar engineering-efficiency projects. The results provide a comparatively better NPV, IRR, payback period, and average annual addition to EPS. Since all four investment criteria are
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advice was not consulted and project scope was not well defined. Findings revealed that among the three projects, Project IHTRHU is the best project due to highest positive NPV rates based on the financial analysis. The discussion analysis comprises IRR, discounted rate, hurdles rate, cash flow, inflation and interest rate for the sole purpose of investment returns. As observed the scope management plan is overall good. Recommendation for improvement on report and tracking performance can be enhanced
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for E-business Projects Mark Jeffery, Northwestern University Introduction The Information Paradox Review of Basic Finance The Time Value of Money ROI, Internal Rate of Return (IRR), and Payback Period Calculating ROI for an E-business Project Base Case Incorporating the E-business Project Incremental Cash Flows and IRR Uncertainty, Risk, and ROI Uncertainty Sensitivity Analysis 1 2 4 4 6 6 7 8 10 11 11 11 Project and Technology Risks Monte Carlo Analysis Applied to ROI Executive Insights The Important
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=111001100,000 = 1.11001 g) Profitability index at 16 % = 98005100,000 = 0.90005 h) IRR- 10% 10 %__________111001 -11001 IRR ____________ 100,000 6% 16 % ____________ 98005 -12986 IRR-10% 6% = -11001-12986 IRR-10%=5% IRR= 5% +10% IRR= 15% i) MIRR At 0 % F.V = P.V (1+MIRR)n 140108 = 100,000(1+MIRR)4 4140108100
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the Net Present Value (NPV) of each of the proposed project with Internal Rate of Return (IRR), Profitability Index and Payback Period. If the project has a positive NPV, it would suggests the project is generating more cash than is required to service the debt and provide the appropriate returns; thus, the higher NPV, the better it is for the company. The project proposal with the positive and highest NPV, IRR and profitability index along with the shortest payback period would be acceptable for investment
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3243 + $9,502.2136 + $9,049.7272 + $8,618.7878 = $17,624.24 NPV Payback period = 2.727 years IRR = 24.32% Scenario 2 – using 5.5% NPV Rate – Calculations are as follows: -$30,000+ $11,000(1+0.055)1+ $11,000(1+0.055)2+ $11,000(1+0.055)3+ $11,000(1+0.055)4+ $11,000(1+0.055)5 = -$30,000 + $10,426.5403 + $9,882.9766 + $9,367.7503 + $8,879.3842 + $8,416.4779 = $16,973.13 NPV Payback period = 2.727 years IRR = 24.32% Scenario 3 – using 6% NPV Rate – Calculations are as follows: -$30,000+ $11
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ASSIGNMENT 3 BRIEF Qualification | BTEC Level 5 HND Diploma in Business | Unit number and title | Unit 6: Business Decision Making | Assignment issued | <date> | Assignment due | <date> | Assessor name | <name of assessor> | Assignment title | Enhancing Business Decision MakingThis assignment is designed to help learners know how to use software-generated information to support the process of decision making in organizations, which correspond to Learning Outcome 4 of
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