文档介绍：Net Present Value and Other Investment Criteria(英文版)(ppt 36页)
Topics Covered
Net Present Value
Other Investment Criteria
Project Interactions
Capital Rationing
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Net Present Value
Example
Suppose we can invest $50 today and receive $60 in one year. What is our increase in value given a 10% expected return?
This is the definition of NPV
Initial Investment
Added Value
$50
$
Net Present Value
NPV = PV - required investment
Net Present Value
Terminology
C = Cash Flow
t = time period of the investment
r = “opportunity cost of capital”
The Cash Flow could be positive or negative at any time period.
Net Present Value
Net Present Value Rule
Managers increase shareholders’ wealth by accepting all projects that are worth more than they cost.
Therefore, they should accept all projects with a positive net present value.
Net Present Value
Example
You have the opportunity to purchase an office building. You have a tenant lined up that will generate $16,000 per year in cash flows for three years. At the end of three years you anticipate selling the building for $450,000. How much would you be willing to pay for the building?
Net Present Value
0 1 2 3
$16,000
$16,000
$16,000
$450,000
$466,000
Present Value
14,953
14,953
380,395
$409,323
Example - continued