暨南大学管理学院财务学管理课件Chapter 7 Capital Budgeting Decision Criteria.ppt

NPV with the TI BAII Plus: Select CF mode. CFo=? -250,000 ENTER C01=? 100,000 ENTER F01= 1 5 ENTER NPV with the TI BAII Plus: Select CF mode. CFo=? -250,000 ENTER C01=? 100,000 ENTER F01= 1 5 ENTER NPV I= 15 ENTER NPV with the TI BAII Plus: Select CF mode. CFo=? -250,000 ENTER C01=? 100,000 ENTER F01= 1 5 ENTER NPV I= 15 ENTER CPT NPV with the TI BAII Plus: Select CF mode. CFo=? -250,000 ENTER C01=? 100,000 ENTER F01= 1 5 ENTER NPV I= 15 ENTER CPT You should get NPV = 85,215.51 Profitability Index Profitability Index NPV = - IO FCFt (1 + k) t n t=1 S Profitability Index PI = IO FCFt (1 + k) n t=1 S t NPV = - IO FCFt (1 + k) t n t=1 S Decision Rule: If PI is greater than or equal to 1, accept. If PI is less than 1, reject. Profitability Index PI with the HP10B: -250,000 CFj 100,000 CFj 5 shift Nj 15 I/YR shift NPV Add back IO: + 250,000 Divide by IO: / 250,000 = You should get PI = 1.34 Internal Rate of Return (IRR) IRR: The return on the firm’s invested capital. IRR is simply the rate of return that the firm earns on its capital budgeting projects. Internal Rate of Return (IRR) Internal Rate of Return (IRR) NPV = - IO FCFt (1 + k) t n t=1 S Internal Rate of Return (IRR) NPV = - IO FCFt (1 + k) t n t=1 S n t=1 S IRR: = IO FCFt (1 + IRR) t Internal Rate of Return (IRR) IRR is the rate of return that makes the PV of the cash flows equal to the initial outlay. This looks very similar to our Yield to Maturity formula for bonds. In fact, YTM is the IRR of a bond. n t=1 S IRR: