Do you want BuboFlash to help you learning these things? Or do you want to add or correct something? Click here to log in or create user.



IRR and NPV
#tvm
Another perspective on value creation comes from converting the initial investment into a capital charge against the annual operating cash flows that the project generates. Recall that the project generates an annual operating cash flow of ¥294,800,000. If we subtract a capital charge of ¥270,570,310 (the amount of a five-year annuity having a present value of ¥1,000 million at 11 percent), we find ¥294,800,000 − ¥270,570,310 = ¥24,229,690. The amount of ¥24,229,690 represents the profit in each of the next five years after taking into account opportunity costs. The present value of a five-year annuity of ¥24,229,690 at an 11 percent cost of capital is exactly what we calculated as the project’s NPV: ¥89.55 million. Therefore, we can also calculate NPV by converting the initial investment to an annual capital charge against cash flow.
If you want to change selection, open original toplevel document below and click on "Move attachment"


Summary

statusnot read reprioritisations
last reprioritisation on suggested re-reading day
started reading on finished reading on

Details



Discussion

Do you want to join discussion? Click here to log in or create user.