公司理财及财务管理知识分析(双语).pptVIP

The answer to all of these questions is yes, although it is not always as obvious. The IRR rule accounts for time value because it is finding the rate of return that equates all of the cash flows on a time value basis. The IRR rule accounts for the risk of the cash flows because you compare it to the required return, which is determined by the risk of the project. The IRR rule provides an indication of value because we will always increase value if we can earn a return greater than our required return. We should consider the IRR rule as our primary decision criteria, but as we will see, it has some problems that the NPV does not have. That is why we end up choosing the NPV as our ultimate decision rule. So what should we do – we have two rules that indicate to accept and three that indicate to reject. * Internal Rate of Return Pitfall 2 - Multiple Rates of Return Certain cash flows can generate NPV=0 at two different discount rates. The following cash flow generates NPV=$A 3.3 million at both IRR% of (-44%) and +11.6%. Cash Flows (millions of Australian dollars) 第三十一页，共四十六页。 Internal Rate of Return Pitfall 2 - Multiple Rates of Return Certain cash flows can generate NPV=0 at two different discount rates. The following cash flow generates NPV=0 at both (-50%) and 15.2%. 1000 NPV 500 0 -500 -1000 Discount Rate IRR=15.2% IRR=-50% 第三十二页，共四十六页。 IRR and Mutually Exclusive Projects Mutually exclusive projects If you choose one, you can’t choose the other Example: You can choose to attend graduate school at either Harvard or Stanford, but not both Intuitively, you would use the following decision rules: NPV – choose the project with the higher NPV IRR – choose the project with the higher IRR 9-* 第三十三页，共四十六页。 Example With Mutually Exclusive Projects Period Project A Project B 0 -500 -400 1 325 325 2 325 200 IRR 19.43% 22.17% NPV 64.05 60.74 The required return for both projects is 10%. Which project should you accept and why? 9-* 第三十四页，共四十六页。 NPV Profiles IRR for A =