CAPITAL BUDGETING TECHNIQUES stust资本预算技术stust.tw.pptx

CAPITAL BUDGETING TECHNIQUES PRESENTER: NGUYEN NGOC HANH ID : MA0N0219 Company Logo Contents CONCLUSION CASE NPV ( NET PRESENT VALUE) IRR ( INTERNAL RATE OF RETURN) Company Logo IRR Definition: is the discount rate that generates a zero net present value for a series of future cash flows. This means that IRR is the rate of return that makes the sum of present value of future cash flows and the final market value of a project (or an investment) equal its current market value. IRR (Cond’t) Formula: CF0 + CF1/ (1+r)1+ CF2/ (1+r)2+ CF3/ (1+r)3+…+ CFn/ (1+r)n = 0 Where: IRR : denoted by ‘r’ CF: cash flow If IRR = r Accept the project If IRR r Reject the project Company Logo IRR (Cond’t) The advantage : - The target IRR is used to describe the attractiveness of the project because the IRR is an indicator reflects the profitability of the project, one hand it expresses the interest rate that the project brings on invested capital, on the other hand it shows the maximum interest loan rate which the project can accept it. Company Logo IRR (Cond’t) Disadvantage: - The application of this criterion may not be accurate if the account exists to balance negative cash flows (NCF) significantly during project operation. At that time the project’s NPV will change sign several times when it discounted at various discount rates and whenever it changes mark leads to a different IRR was determined that we do not know what is the proper value for the assessment Company Logo NPV  NPV is the sum present value of the net income that the project brings in its life cycle. In other words, NPV is used in capital budgeting to analyze the profitability of an investment or project. Formula : NPV = ∑Ct/ (1+r)t – C0 - If NPV = 0 Accept the project - If NPV 0 Reject the project Company Logo BULLOCK GOLD MINING Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company’s geologist, has just finishe