HTA 602 Lecture Notes - Lecture 9: Cash Flow, Decision Rule, Net Present Value

• School: Ryerson University
• Department: Hospitality and Tourism Management
• Course: HTA 602
• Professor: Bernard Mc Evoy

Document Summary

The difference between the market value of a project and its cost. A positive npv means that the project is expected to add value to the firm and will therefore increase the wealth of the owners. Since our goal is to increase owner wealth, npv is a direct measure of how well this project will meet our goal. 12,627. 42: npv = 63,120/(1. 12) + 70,800/(1. 12)^2+91,080(1. 12)^3 165,000 , 0= (cid:883)(cid:888)(cid:887),(cid:882)(cid:882)(cid:882);(cid:882)(cid:883)=(cid:888)(cid:885),(cid:883)(cid:884)(cid:882);(cid:882)(cid:883)=(cid:883);(cid:882)(cid:884)=(cid:889)(cid:882),(cid:890)(cid:882)(cid:882);(cid:882)(cid:884)=(cid:883);(cid:882)(cid:885)= (cid:891)(cid:883),(cid:882)(cid:890)(cid:882);(cid:882)(cid:885)=(cid:883);;=(cid:883)(cid:884); =(cid:883)(cid:884),(cid:888)(cid:884)(cid:889). (cid:886)(cid:883, use the cash flow and npv functions on the ti baii plus. Your required return for assets of this risk is 12% Using the npv function: first component is required return entered as a decimal, second component is the range of cash flows beginning with year 1, subtract initial investment after computing npv. Computation: estimate the cash flows, subtract the future cash flows from initial cost until initial investment has. Decision rule accept if the payback period is less than some preset limit.