Beruflich Dokumente
Kultur Dokumente
1
McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All
1-2 8-2
2
1-3 8-3
Chapter Outline
Net Present Value
The Payback Rule
The Internal Rate of Return
The Profitability Index
The Practice of Capital Budgeting
3
1-4 8-4
4
1-5 8-5
5
1-6 8-6
7
1-8 8-8
8
1-9 8-9
Payback Period
How long does it take to get the initial cost
back in a nominal sense?
Computation
Estimate the cash flows
Subtract the future cash flows from the initial
cost until the initial investment has been
recovered
Decision Rule Accept if the payback
period is less than some preset limit
10
8-11
1-11
11
8-12
1-12
13
8-14
1-14
14
8-15
1-15
15
8-16
1-16
16
8-17
1-17
Advantages of IRR
Knowing a return is intuitively appealing
It is a simple way to communicate the
value of a project to someone who doesnt
know all the estimation details
If the IRR is high enough, you may not
need to estimate a required return, which
is often a difficult task
18
8-19
1-19
19
8-20
1-20
20
8-21
1-21
Profitability Index
Measures the benefit per unit cost, based
on the time value of money
A profitability index of 1.1 implies that for
every $1 of investment, we receive $1.10
worth of benefits, so we create an
additional $0.10 in value
This measure can be very useful in
situations in which we have limited capital
23
8-24
1-24
24
8-25
1-25
25