Valuation Methods & Capital Budgeting Payback/Discounted Payback IRR MIRR Benefit Cost Ratio (BCR) NPV (DCF) FCF: Free cash flow FTE: Flow to equity APV: Adjusted present value Payback Rule Payback period: The amount of time it takes to recover the original cost.
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Payback period=2+((600-420)/225)=2.8 yearsAccept because payback < 3 years
Accumulated discounted cash flows
The project never pays back so reject.What is the NPV?
Rato of discounted inflows to outflows.
Rule: Accept project if BCR greater than 1.
Use caution if using to compare mutually exclusive projects.
Similar BCRs can have radically different NPV’s.
IRR is that r that makes the NPV=0
Crossover Rate = 11.8
All Cash Flows should be after-tax cash flows