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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 on theme: "PROJECT INTERACTIONS èErosion e.g., diet and regular soft drinks èEnhancement e.g., “The Lion King” & merchandising èContingent Projects e.g., need road."— Presentation transcript:

1 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

2 PRESENT VALUE OF AN ANNUITY

3 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

4 INFLATION & CAPITAL BUDGETING

5 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

6 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

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