ACCT-311 Lecture Notes - Lecture 5: Perfect Competition, Payback Period, Net Present Value
25 Mar 2016
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Reject because mirr = 5. 6% < r = 10% Also, if mirr < r, npv will be negaive: npv = -,554. For two mutually exclusive projects of equal size and same life, npv and. Mirr will always lead to the same decision. The same can be said for projects of equal size but diferent lives. Conlicts can sill occur for projects of diferent sizes. The proitability index (pi) is the present value of future cash lows divided by the iniial cost. Pi > 1 is equivalent to npv > 0. Payback period is the number of years required to recover a project"s cost, or how long it takes to get the business"s money back. Firms establish a benchmark payback period; projects whose payback exceeds this benchmark are rejected. Provides an indicaion of a project"s risk and liquidity. Discounted payback: uses discounted rather than raw cfs. Projects with shorter payback periods are preferred to those with longer ones.
