What Are The Advantages And Disadvantages Of Discounted Cash Flow Methods Such As Npv And Irr Essays and Term Papers

  • Business Finance

    the advantages and disadvantages of the following investment rules: Net Present Value (NPV), Payback Period, Discounted Payback Period, Internal Rate of Return (IRR) and Profitability Index (PI). (You can start by considering the following questions for each investment rule: Does it use cash flows or...

    1349 Words | 4 Pages

  • 7 Capital Investment Appraisal

    OUTCOMES CHAPTER 10: Investment Appraisal Methods You should be able to: Explain the nature and importance of investment decision making First hour – 23.11.11  Identify the four main investment appraisal methods found in practice •Payback •ARR Use each method to reach a decision on a particular investment...

    1474 Words | 7 Pages

  • Answers to Mini-Case Questions

    and rationale associated with the various capital budgeting evaluation methods such as payback period, discounted payback period, NPV, IRR, MIRR, and PI. 1. Compute the payback period for each project. |Time of Cash Flow |Nano Test Tubes |Microsurgery Kit ...

    1823 Words | 8 Pages

  • Capital Budgeting

    (1+i)^y PV= present value, FV= future value, i= discount rate, and y= time. 1a) If the discount rate is 0%, what is the projects net present value? Year Cash Flow Discount Rate Discounted Cash Flow 0 -$400,000 0% -$400,000 1 $100,000 0% $100,000 2 $120,000 0% $120...

    1147 Words | 4 Pages

  • Investment Appraisal

    D. 1. 2. 3. 4. 5. 6. INVESTMENT APPRAISAL The nature of investment decisions and the appraisal process Non-discounted cash flow techniques Discounted cash flow techniques Allowing for inflation and taxation in DCF Adjusting for risk and uncertainty in investment appraisal Specific investment decisions...

    2650 Words | 9 Pages

  • Accounting and Finance 7

    a. What* is *capital budgeting? “Simply put, capital budgeting is the whole process of analyzing projects and deciding which ones to include in the capital budget” (Page 344). The five key methods used to evaluate projects for capital budgeting include: (1) payback period, (2) discounted payback...

    3683 Words | 10 Pages

  • Chapter Five Npv

    Chapter Five - NPV and Other Investment Rules http://cehosting.blackboard.com/webct/urw/tp26994288182051.lc26972... Printable View of: Chapter Five - NPV and Other Investment Rules Print Save to File File: Overview and Learning Objectives Overview and Learning Objectives Overview This chapter...

    4729 Words | 17 Pages

  • Strategic Business Decisions

    Planning Process 4 4. Performance Management 4 5. Methods of Investment Appraisal 5 5.1 Accounting Rate of Return (ARR) 5 5.2 Payback Period Approach 6 5.3 Discounted Cash Flow 7 5.3.1 Net Present Value (NPV) 7 5.3.2 Internal Rate of Return (IRR) 8 6. Conclusion 12 7. References 13 1. Executive...

    3315 Words | 10 Pages

  • Corporate Finance

    the machineries. He has asked your advice on the various techniques to evaluate the investment. Discuss the several methods of investment appraisal techniques considering the methods using time value of money and not using time value of money. Beside the above, the CEO is also keen to know about the...

    1775 Words | 8 Pages

  • Capital Budgeting

    factors are the demand, hence sales for product/services and the costs of production to give the cash flow, cash outflow etc. ii. Selection of an appropriate techniques of appraisal e.g. NPV, IRR etc iii. Source of finance iv. Evaluation of risk and uncertainty ...

    5557 Words | 24 Pages

  • Guillermo Furniture Store Analysis

    Project, or the Broker Project. As Guillermo’s owner, the store has to choose the best alternative of these projects which can give a competitive advantage to the store. The current managers use capital budgeting techniques to find out the best project among the bunch of projects that are mutually exclusive...

    1814 Words | 5 Pages

  • Finance Mini Case Chp11

    Mini Case Chapter 11 a. What is capital budgeting? Capital budgeting is the decision process that managers use to identify those projects that add value to the firm’s value, and as such it is perhaps the most important task faced by financial managers and their staff. The process of evaluating...

    2704 Words | 30 Pages

  • Investment Analysis

    context Topic List 1 Making investment appraisal decisions 2 The payback method 3 The accounting rate of return method 4 The net present value method 5 The internal rate of return method Summary and Self-test Answers to Self-test Answers to Interactive questions 275 ...

    11335 Words | 86 Pages

  • Net present value (NPV), payback period (PBP) and internal rate of return (IRR) approaches for a project evaluation

    will discuss the net present value (NPV), payback period (PBP) and internal rate of return (IRR) approaches for a project evaluation. It is often said that NPV is the best approach investment appraisal, which I why I will compare the strengths and weaknesses of NPV as well as the two others to se if the...

    2945 Words | 11 Pages

  • Capital Budgeting

    estimated cash flows for two proposed projects. Project L involves adding a new item to the firm’s ignition system line; it would take some time to build up the market for this product, so the cash inflows would increase over time. Project S involves an add-on to an existing line, and its cash flows would...

    751 Words | 4 Pages

  • Managing Financial Principles and Techniques

    NET PRESENT VALUE (NPV) Year PROJECT X £000 Project Y £ 000 Discount Factor X Y 0 -200 -200 -200 -200 1 35 218 0.909 31.815 198.162 2 80 10 0.826 66.08 8.26 3 90 10 0.751 67.59 7.51 4 75 4 0.683 51.225 2.732 5 20 3 0.621 12.42 1.863 229 219 1)NET PRESENT VALUE (NPV) X= 229-200=29 ...

    1703 Words | 8 Pages

  • fundamental of budgeting

    decisions is to select capital projects that will increase the value of the firm. Capital investments are important because they involve substantial cash outlays and, once made, are not easily reversed. Capital budgeting techniques help management to systematically analyze potential business opportunities...

    3773 Words | 21 Pages

  • Business Finance

    INTRODUCTION Chapters 2 and 3 introduced the concept of the net present value (NPV) and its use for making investment or capital budgeting decisions. This chapter starts with a review of the NPV approach to investment decision making and then presents three other widely used measures. ...

    4618 Words | 19 Pages

  • Financial Management

    Appraisal Methodologies 4 (i) The Payback Methods 4 a) Payback Period 4 b) Discounted Payback Method 5 (ii) Discounted Cashflow Methods (DCF) 5 a) The Net Present Value (NPV) Method 5 b) The Internal Rate of Return (IRR) Method 7 c) NPV & IRR 9 (iii) Comparison of Capital Investment...

    3840 Words | 16 Pages

  • Irr vs Npv Techniques

    world means wealth. Money is desired and techniques to choose the best option what to invest in have been developed. Purpose of this essay it to look at the modes of discounted cash flow valuation (DCF). Discounted cash flow valuation looks for present value, which has to be invested in order to obtain...

    2311 Words | 10 Pages