Capital Budgeting Techniques ∑B(1+)--∑C(1+1)-1 LEV=t=0 (1-(1+1)-7 o The lev calculates the present value of an infinite series of projects(rotations). o LEV is applied just like NPV in making investment decisions, with positive LE Vs inferring investment acceptability and negative LEVs suggesting project rejection
Capital Budgeting Techniques u The LEV calculates the present value of an infinite series of projects (rotations). u LEV is applied just like NPV in making investment decisions, with positive LEVs inferring investment acceptability and negative LEVs suggesting project rejection. T T t t t T t t t i B i C i LEV (1 (1 )) (1 ) (1 ) 0 0
Capital Budgeting Techniques ∑B(+/R)-1=∑C(1+/RR) t=0 t=0 The irr is defined as that discount rate that equates the present value of the benefits with the present value of the cost. Bt=a benefit at time t i=annual discount rate. Ct=a cost at time t, T=lifetime of project or rotation length
Capital Budgeting Techniques The IRR is defined as that discount rate that equates the present value of the benefits with the present value of the cost. Bt=a benefit at time t, i=annual discount rate, Ct=a cost at time t, T=lifetime of project or rotation length. T t t t T t Bt IRR t C IRR 0 0 (1 ) (1 )