FI 473 Lecture Notes - Lecture 42: Discounted Cash Flow, Payback Period, Net Present Value
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You have payback period 0f 2. 5 and wacc, what is npv? do cf, wacc is i/ir cf0 is cf1+cf2+(cf3/t) (cut third year in 2) for most firms the reinvestment rate assumption in the. Npv is more realistic than the assumption in irr discounted payback period improves on the regular payback period by accounting for time value of money. Npv is the single best method to use when a npv is repated, the last year of first rotation gets money "back" (investment so cf-investment. Equivalent annual annuity , make fv 0 and npv pv, figure for payment an analyst will need to use the eaa approach to evaluate projects with unequal lives when projects are mutually esclusive. Eaa aproach to evaluating projects with unequal lives. Does not do a good job of taking inflation into account. Debt(before tax cost)(1-tax rate)+ preferred stock(cost of preffered stock)+common equity(cost of common equity) Wacc nce same except end is new common equity cost.
