Professional Documents
Culture Documents
NPV
IRR
MIRR
PI
Payback
Discounted Payback
Crossover Rates
1. Fig 12-5.
2. Crossover rate and its computation on excel.
3. If WACC left of cross-over rate: conflict; else no conflict: See
Figure
4. For normal, independent projects, there is no conflict
between NPV and IRR.
5. For mutually exclusive projects, if the profiles intersect and if the
r is less than the crossover rate, then conflict arises.
6. There are primarily two reasons why NPV profiles cross:
a. Timing differences: Most of one projects CFs come in early
while the other projects CFs come in later. This is the case
in our example. IRR favors projects that have larger
CFs coming in earlier.
Profitability Index
PI = PV of future CF/Initial Cost
Project is acceptable as long as PI > 1 NPV > 0
Payback Period
1.
2.
3.
4.
Show Table 12-1: Survey of methods used in practice. Trends over the
years.
Capital Rationing
Why do companies forego value-adding projects?
Reasons and solutions on PPT.