return (IRR). These are both tools that analyze the present value of the cost of a project as well as the present value of that projects future cash flows. An essential part of these methods is that they both account for discounted cash flow (DCF), meaning that they both reflect the time value of money. When analyzing independent projects with conventional cash flows, both the NPV and IRR will provide projections along the same lines. However when those two conditions are not met, the IRR method will
Words: 4274 - Pages: 18
Assignment #2 Question 1 (a) How much money will Kevin need at retirement? (12 points) EAR = .10 = [1 + (APR / 12)]12 – 1; EAR = .07 = [1 + (APR / 12)]12 – 1; APR = 12[(1.10)1/12 – 1] = .0957 or 9.57% APR = 12[(1.07)1/12 – 1] = .0678 or 6.78% PVA = $20,000{1 – [1 / (1 + .0678/12)12(25)]} / (.0678/12) = $2,885,496.45 PV = $900,000 / [1 + (.0678/12)]300 = $165,824.26 $2,885,496.45 + 165,824.26 = $3,051,320.71 (b) How much will he have to save each month in years 11 through 30? (20 points) His
Words: 748 - Pages: 3
value (NPV) and internal rate of return (IRR) techniques are discounted cash flow (DCF) evaluation techniques. These are called DCF methods because they explicitly recognize the time value of money. NPV is the present value of the project's expected future cash flows (both inflows and outflows), discounted at the appropriate cost of capital. NPV is a direct measure of the value of the project to shareholders. e. The internal rate of return (IRR) is the discount rate that equates the present
Words: 11853 - Pages: 48
in the chapter even though it is the subject of Chapter 13. The knowledge is necessary to understand and motivate the capital budgeting models. It relates NPV - IRR procedures to the required rate of return idea, something with which students are already familiar. We explicitly tie NPV and IRR together by emphasizing that the IRR comes from the NPV equation as the interest rate that sets NPV=0. This helps to develop an overall understanding of both procedures. TEACHING OBJECTIVES
Words: 1835 - Pages: 8
|3 |4 |5 | |Cash Flow |-$100 |-$50 |$80 |$0 |$100 |$100 | They’re normal: there is only one change in cash flows from negative to positive. LG1 2. Derive an accept/reject rule for IRR similar to 13-8 that would make the correct decision on cash flows that are non-normal, but which always have one large positive cash flow at time zero followed by a series of negative cash flows: |Time |0 |1 |2 |3 |4
Words: 3605 - Pages: 15
Handouts for Corporate Finance 1 Capital Budgeting Introduction A logical prerequisite to the analysis of investment opportunities is the creation of investment opportunities. Unlike the field of investments, where the analyst more or less takes the investment opportunity set as a given, the field of capital budgeting relies on the work of people in the areas of industrial engineering, research and development, and management information systems (among others) for the creation of investment
Words: 3456 - Pages: 14
Rumah berencana untuk memotong biaya sebagai perusahaan menghadapi pasar melambat dan penurunan profitabilitas. Isu kedua kasus tersebut adalah untuk mengevaluasi apa yang dapat dilakukan untuk mengurangi baik patokan IRR yang diperlukan terkait dengan proyek ini atau untuk meningkatkan IRR proyek yang diharapkan. Karena penurunan margin pada proyek-proyek konstruksi baru-baru mereka RBH kebutuhan proyek untuk membawa pendapatan dan keuntungan mereka
Words: 554 - Pages: 3
Economic Comparisons of Mutually Exclusive Alternatives Objective: To evaluate and compare mutually exclusive alternatives and select the most economical. The comparison is based on the lifecycle benefits and costs of each alternative over a specified study period. The Minimum Attractive Rate of Return (MARR) The lowest interest rate acceptable to the investor. Comparing Mutually Exclusive Alternatives The most common evaluation techniques include 1. Present worth analysis, 2. Annual
Words: 1718 - Pages: 7
(NPV) and Internal Rate of Return (IRR) results, describes the relationship between the two and explains the reasons behind the acquisition recommendation (e) in the Microsoft Excel spreadsheet. Analyzing the Results The case study presents two corporations (A and B) with different revenue values and expenses as well as variable depreciation expenses, tax rates and discount rates. Members of the team computed both corporations’ cash flow, NPV and IRR value using a Microsoft Excel spreadsheet
Words: 515 - Pages: 3
4,690( is break even) => 5000 units 17. c Feedback: [pic] = - $9,042.07 (Negative) [pic] = $1,279.52 => Project B should be accepted and project A should be rejected. 18. e Feedback: Because these are mutually exclusive projects, the IRR rule should not be applied. 19. b Feedback: [pic] 20. a
Words: 1125 - Pages: 5
