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Net Present Value and Other Investment Criteria. What is the Criterion? Maximizing Firm Value.

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Presentation on theme: "Net Present Value and Other Investment Criteria. What is the Criterion? Maximizing Firm Value."— Presentation transcript:

1 Net Present Value and Other Investment Criteria

2 What is the Criterion? Maximizing Firm Value

3 What is the Criterion? Net Present Value

4 What is the Criterion? Profitability Index

5 What is the Criterion? Internal Rate of Return

6 What is the Criterion? Pay Back Average Accounting Rate of Return

7 Problem 17

8 Payback Period Cum CF(A)Cum CF(B) 1 1000010000 2 3500015000 3 6000018000 444000038000 Discounted Pay BackDiscounted TimeCum CF (A)Cum CF (B) 1 8696 8696 2 2759912476 3 4403714449 426130325884

9 Problem 17 NPV, Profitability Index, and IRR Discount RateNPV (A)NPV (B) 0.00% $ 260,000 $ 20,000 5.00% $ 186,422 $ 15,105 10.00% $ 128,080 $ 11,137 15.00% $ 81,303 $ 7,884 20.00% $ 43,418 $ 5,187 25.00% $ 12,448 $ 2,928 30.00% $ (13,087) $ 1,019 35.00% $ (34,308) $ (608) Profitability IndexProject AProject B @ 15% IRRProject AProject B

10 Problem 17

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