Financial Homework
lovelygirl28
One of the main uses of TVM concepts is to help a firms CFO and CEO decide what new investments to approve, vs. disapprove. This is referred to as capital budgeting. There are 3 commonly used methods to do capital budgeting; simple payback, net present value or NPV, and internal rate of return, or IRR.
Use all three methods for the following example; look at my "helpful memo on using Excel for TVM" to assist you:
A project is expected to generate a savings or profit improvement of $25,000/yr each for 4 years
The investment needed to generate this savings is $80,000
1 whats the simple payback period?
2 whats the projects NPV if the firms discount rate or cost of capital is 10%?
3 whats the projects IRR For all three methods, completely ignore taxes?
11 years ago
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