Comments on: How Net Present Value Reveals an Investment’s Rate of Return http://allequity.info/discount-rate-of-return/how-net-present-value-reveals-an-investments-rate-of-return Mon, 04 Jan 2010 01:52:12 -0600 http://wordpress.org/?v=2.8.2 hourly 1 By: simon_sez28 http://allequity.info/discount-rate-of-return/how-net-present-value-reveals-an-investments-rate-of-return/comment-page-2#comment-1284 simon_sez28 Mon, 03 Aug 2009 03:48:09 +0000 http://allequity.info/discount-rate-of-return/how-net-present-value-reveals-an-investments-rate-of-return#comment-1284 9) True. The cost of capital is your cost of funding, you you earn less than that, simply means you're selling something at a price lower than your cost, so will only shrink shareholders' wealth. 10) True. Refer to the Gordon formula itself, the g means growth, and you could only fix in a contact g value. 11) False. Capital Budgeting uses Net Present Value, hence it's a cashflow-specific valuation. 12) True. Pretty straight-forward, just means how fast can you get back your cash. 13) True. IRR is the discount rate that makes NPV = 0 14) True. Simply means break=even point. Imagine if your selling cost equals your product cost, don't you earn zero profit? 15) Okay this is a little bit tricky. If it's comparing whether we should choose IRR>WACC, answer is True we choose IRR>WACC. But the thing is for mutually exclusive projects, the correct approach is to choose highest NPV, nothing to do with IRR. 9) True. The cost of capital is your cost of funding, you you earn less than that, simply means you're selling something at a price lower than your cost, so will only shrink shareholders' wealth.

10) True. Refer to the Gordon formula itself, the g means growth, and you could only fix in a contact g value.

11) False. Capital Budgeting uses Net Present Value, hence it's a cashflow-specific valuation.

12) True. Pretty straight-forward, just means how fast can you get back your cash.

13) True. IRR is the discount rate that makes NPV = 0

14) True. Simply means break=even point. Imagine if your selling cost equals your product cost, don't you earn zero profit?

15) Okay this is a little bit tricky. If it's comparing whether we should choose IRR>WACC, answer is True we choose IRR>WACC. But the thing is for mutually exclusive projects, the correct approach is to choose highest NPV, nothing to do with IRR.

]]> By: 365 Days http://allequity.info/discount-rate-of-return/how-net-present-value-reveals-an-investments-rate-of-return/comment-page-1#comment-1245 365 Days Mon, 03 Aug 2009 02:00:51 +0000 http://allequity.info/discount-rate-of-return/how-net-present-value-reveals-an-investments-rate-of-return#comment-1245 By: TAZZLOVER8 http://allequity.info/discount-rate-of-return/how-net-present-value-reveals-an-investments-rate-of-return/comment-page-1#comment-1286 TAZZLOVER8 Mon, 03 Aug 2009 01:30:03 +0000 http://allequity.info/discount-rate-of-return/how-net-present-value-reveals-an-investments-rate-of-return#comment-1286 As unfair as it seems to you, if something is on sale for a limited time, you are stuck. If a store has the coat you were loving for a long time on sale while you were out of town, they don't have an obligation to sell it at the sale price forever. As unfair as it seems to you, if something is on sale for a limited time, you are stuck. If a store has the coat you were loving for a long time on sale while you were out of town, they don't have an obligation to sell it at the sale price forever.

]]> By: batigoltuan http://allequity.info/discount-rate-of-return/how-net-present-value-reveals-an-investments-rate-of-return/comment-page-1#comment-1287 batigoltuan Sun, 02 Aug 2009 21:55:58 +0000 http://allequity.info/discount-rate-of-return/how-net-present-value-reveals-an-investments-rate-of-return#comment-1287 The interest payments are tax deductible and the cost of debt is reflected in the cost of capital; the required rate of return on the project. The interest payments are tax deductible and the cost of debt is reflected in the cost of capital; the required rate of return on the project.

]]> By: Lost in Space http://allequity.info/discount-rate-of-return/how-net-present-value-reveals-an-investments-rate-of-return/comment-page-1#comment-1277 Lost in Space Sun, 02 Aug 2009 20:11:16 +0000 http://allequity.info/discount-rate-of-return/how-net-present-value-reveals-an-investments-rate-of-return#comment-1277 NPV = {n=1[Rn/(1+i)n]} - {n=0[On/(1+i)n]} wheren = time period, such as year Rn = cash inflow in period n Otn = cash outflow in period n k = discount rate or the cost of capital  = summation over all time periods Just had this in Master's Econ class NPV = {n=1[Rn/(1+i)n]} – {n=0[On/(1+i)n]}

wheren = time period, such as year
Rn = cash inflow in period n
Otn = cash outflow in period n
k = discount rate or the cost of capital
 = summation over all time periods

Just had this in Master's Econ class

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