Slide 1
Key Concepts and Skills
Chapter Outline
Good Decision Criteria
Net Present Value
Project Example Information
NPV – Decision Rule
Computing NPV for the Project
Decision Criteria Test - NPV
Calculating NPVs with a Spreadsheet
Payback Period
Computing Payback for the Project
Decision Criteria Test - Payback
Advantages and Disadvantages of Payback
Discounted Payback Period
Computing Discounted Payback for the Project
Decision Criteria Test – Discounted Payback
Advantages and Disadvantages of Discounted Payback
Average Accounting Return
Computing AAR for the Project
Decision Criteria Test - AAR
Advantages and Disadvantages of AAR
Internal Rate of Return
IRR – Definition and Decision Rule
Computing IRR for the Project
NPV Profile for the Project
Decision Criteria Test - IRR
Advantages of IRR
Calculating IRRs With A Spreadsheet
Summary of Decisions for the Project
NPV vs. IRR
IRR and Nonconventional Cash Flows
Another Example – Nonconventional Cash Flows
NPV Profile
Summary of Decision Rules
IRR and Mutually Exclusive Projects
Example With Mutually Exclusive Projects
NPV Profiles
Conflicts Between NPV and IRR
Modified IRR
Profitability Index
Advantages and Disadvantages of Profitability Index
Capital Budgeting In Practice
Summary – DCF Criteria
Summary – Payback Criteria
Summary – Accounting Criterion
Quick Quiz
Ethics Issues
Comprehensive Problem
Slide 50