Shortcomings of the IRR Now here is another example. Project B and Project B again you get $100 million today, you expect to put down $300 million a year from now, and you expect to get $250 million a year from now. And we are still dealing; let us say with the same company that has the same discount… Read More »
NPV vs IRR Every business comes across a number of decisions to be made on a daily basis regarding making investments in different projects. However, making these investments requires a huge analysis and consideration of a number of things.
Multiple IRR In real life, you would find many projects that have more cash outflows in addition to initial cash outflow. In such cases there may be more than one discount rate that can result in Zero NPV of those projects and there may also be a case where there is no discount rate that will result in zero… Read More »
IRR Decision Rule IRR is one among a number of capital budgeting techniques which is most commonly used by the investors for evaluating their investment decisions. What is IRR? IRR is the discount rate on which NPV of a project becomes Zero OR we can define IRR as the discount rate at which Present Value… Read More »
How to Calculate Discounted Payback Period For calculating discounted payback period (DPP), we will calculate the present value (PV) of each cash flow (CF) starting from the first year as zero point. For said purpose, the management is required to set a suitable discount rate. The discounted cash flow (DCF) for each period is to… Read More »
How to Calculate Payback Period-Capital Budgeting Techniques Payback period is calculated by capital invested in the project by the net annual cash flow. Average of net annual cash flows may be used if net annual cash flows are not expected to be the same. Payback Period= Initial Investment/Average Annual Cash Flows
Internal Rate Of Return And Mutually Exclusive Projects……. What’s the Concern? While considering the mutually exclusive projects, IRR technique can be misleading. Investment projects are said to be mutually exclusive if only one project could be accepted and others would have to be rejected. NPV and IRR methods for project evaluation leads to conflicting results… Read More »
How to Calculate Net Present Value using Excel? The calculation of net present value is used when a business has to identify a viable investment opportunity. There are many ways to calculate the NPV. The simplest way is: By Use of NPV function in Excel: The NPV function consists of the following arguments: =NPV (Rate, FCF… Read More »