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Net Present Value and Other Investment Criteria: © 2003 The Mcgraw-Hill Companies, Inc. All Rights Reserved
Net Present Value and Other Investment Criteria: © 2003 The Mcgraw-Hill Companies, Inc. All Rights Reserved
20,000
10,000
0
-10,000 0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 0.2 0.22
-20,000
Discount Rate
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc. All rights reserved.
9.9 Calculating IRRs With A Spreadsheet
$2,000.00
$0.00
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 0.55
($2,000.00)
NPV
($4,000.00)
($6,000.00)
($8,000.00)
($10,000.00)
Discount Rate
1 325 325
Which project
2 325 200 should you accept
and why?
IRR 19.43% 22.17%
$160.00
$140.00 IRR for A = 19.43%
$120.00 IRR for B = 22.17%
$100.00
Crossover Point = 11.8%
$80.00
NPV
A
$60.00
B
$40.00
$20.00
$0.00
($20.00) 0 0.05 0.1 0.15 0.2 0.25 0.3
($40.00)
Discount Rate
Project:
Year 1: NI = 13,620;
Year 2: NI = 3,300;
Year 3: NI = 29,100;
average book value 72,000.
require an average accounting return of 25%
Average Net Income:
(13,620 + 3,300 + 29,100) / 3 = 15,340
AAR = 15,340 / 72,000 = .213 = 21.3%
Do we accept or reject the project?
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc. All rights reserved.
9.20 Profitability Index