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Graphs the relationship between net present value and

discount rates.
A graph with the discount rate on the x- axis and the NPV of
the investment on the y-axis.
Higher discount rate means cash flows that occur sooner are
more influential to NPV. Since the earlier payments tend to
be the outflows, the NPV profile generally shows an inverse
relationship between the discount rate and NPV
Discount rate at which the NPV equals 0 is called the internal
rate of return (IRR)

EXAMPLE:
A Company is considering two projects with the
following cash flows. The Company's cost of
capital is 10 percent.

Expected Net Cash Flows (in millions)

Year Project L Project S

0 -$100 -$100
1 10 70
2 60 50
3 80 20

1) Compute for the NPVs of the project.

Using the formula:

2) Graph the points.

Payback Period
The length of time required for an investments cash flows to cover its
cost.

Discounted Payback
The

length of time required for an investments cash flows, discounted

at the investments cost of capital, to cover its cost.

= 2.33

Assume 10% cost of capital

= 2.95