Npv Irr

Capital Budgeting Techniques and Practice

Capital Budgeting : the process of planning for purchases of long-term assets. ,[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],Decision-making Criteria in Capital Budgeting

Payback Period ,[object Object],Payback period = 3.33 years . 0 1 2 3 4 5 8 6 7 (500) 150 150 150 150 150 150 150 150

[object Object],[object Object],[object Object],[object Object],[object Object],Payback Period

Other Methods ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Net Present Value ,[object Object],NPV = - IO ACF t (1 + k) t n t=1 

Net Present Value ,[object Object],[object Object],[object Object]

[object Object],NPV Example 0 1 2 3 4 5 250,000 100,000 100,000 100,000 100,000 100,000

Net Present Value (NPV) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Profitability Index PI = IO ACF t (1 + k) n t=1  t NPV = - IO ACF t (1 + k) t n t=1 

[object Object],[object Object],[object Object],Profitability Index

Internal Rate of Return (IRR) ,[object Object]

Internal Rate of Return (IRR) NPV = - IO ACF t (1 + k) t n t=1  n t=1  IRR: = IO ACF t (1 + IRR) t

Internal Rate of Return (IRR) ,[object Object],[object Object],n t=1  IRR: = IO ACF t (1 + IRR) t

Calculating IRR ,[object Object],[object Object],0 1 2 3 4 5 250,000 100,000 100,000 100,000 100,000 100,000

IRR ,[object Object],[object Object],[object Object]

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