PROJECT INTERACTIONS èErosion e.g., diet and regular soft drinks èEnhancement e.g., “The Lion King” & merchandising èContingent Projects e.g., need road.

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Presentation transcript:

PROJECT INTERACTIONS èErosion e.g., diet and regular soft drinks èEnhancement e.g., “The Lion King” & merchandising èContingent Projects e.g., need road to develop mine èMutually Exclusive Projects e.g., replacement equipment

PRESENT VALUE OF AN ANNUITY

ANNUITY PV (CONT.) Given annuity PMT, r and n, we can find PV Given annuity PV, r and n, we can find PMT EAC technique converts an uneven stream into an annuity with same PV

INFLATION & CAPITAL BUDGETING

INFLATION & CAP. BUD. (cont.) èTo calculate NPV with inflation: èDiscount nominal cash flows at nominal discount rate OR èDiscount real cash flows at real discount rate èWatch out for depreciation tax shields

INVESTMENT OPTIONS èBe aware of future choices (options) that might be associated with projects - these can add to the value of the project èFuture investment options èAbandonment option èPostponement option