In the competitive market Slope=-1.5,lending Y Slope=-1.1,Borrowing slide 15
slide 15 In the competitive market In the competitive market Slope=-1.5, lending Y Slope=-1.1, Borrowing
Corporate Investment Decision Making The Basic Financial Principle of Investment Decision Making An investment project must be at least as desirable as what is available in the financial market. Net Present Value (NPV) NPV=PV of Cash flow in PV of Cash flow out An investment is worth making if it has a positive NPV slide 16
slide 16 Corporate Investment Decision Making Corporate Investment Decision Making The Basic Financial Principle of Investment Decision Making An investment project must be at least as desirable as what is available in the financial market. Net Present Value (NPV) NPV= PV of Cash flow in - PV of Cash flow out An investment is worth making if it has a positive NPV
Net Present Value (NPV) WPVis the present value of an investment project's net cash flows minus the project's initial cash outflow. NPV CF CFn-ICO (1+k)1( · slide 17
slide 17 Net Present Value (NPV) Net Present Value (NPV) NPV is the present value of an investment project’s net cash flows minus the project’s initial cash outflow. CF 1 CF 2 CF n (1+ k ) 1 (1+ k ) 2 (1+ k ) n NPV = + + . . . + - ICO
NPV Solution Basket Wonders has determined that the appropriate discount rate (k)for this project is 13%. NPV= $10,000 $12,000 +$15,000 (1.13)1 (1.13)2 (1.13)3 $10,000 $7,000 (1.13)4 (1.13) 5-$40,000 slide 18
slide 18 Basket Wonders has determined that the appropriate discount rate (k) for this project is 13%. $10,000 $7,000 + NPV Solution NPV Solution $10,000 $12,000 $15,000 (1.13 ) 1 (1.13 ) 2 (1.13 ) 3 + + - $40,000 $40,000 (1.13 ) 4 (1.13 ) 5 NPV = +
NPV Solution NPV=$10000PVIE%,1)+$12,000PVIF,2)+ $15,000Pyi3%,3)+10,000(pV1fis%,4)+ $7,000PVIF13%,5-$40,000 NPV= $10,000(.885)+$12,000(.783) $15,000(.693)+$10,000(.613+ $7,000(.543)-$40,000 NPV $8,850+$9,396+$10,395+$6,130 +$3,801-$40,000 =-$1,428 slide 19
slide 19 NPV Solution NPV Solution NPV = $10,000(PVIF13%,1) + $12,000(PVIF13%,2) + $15,000(PVIF13%,3) + $10,000(PVIF13%,4) + $ 7,000(PVIF13%,5) - $40,000 $40,000 NPV = $10,000(.885) + $12,000(.783) + $15,000(.693) + $10,000(.613) + $ 7,000(.543) - $40,000 $40,000 NPV = $8,850 + $9,396 + $10,395 + $6,130 + $3,801 - $40,000 $40,000 = - $1,428