What is important when considering investment opportunities?
When making an investment decision take the alternative with the highest NPV.
Choosing this alternative is equivilant receiving the NPV today
What is the NPV of a rejected project?
The NPV of a rejected project is alway 0
no new Cost or Benefits arrise
What are the basic assumptions due to the NPV?
Accept project with a positve NPV
Reject Project with a negative NPV
0 is the Best alternative in Case of only negative NPV
What is more favourable, Cash today, Cash in the future or maximize NPV
we should always maximize NPV first.
We can then borrow or lend to shift cash flows through time and find our most preferred pattern of cash flows
What is a timeline and how can it help?
A timeline is a linear representation of the timing of potential cash flows.
Drawing a timeline of the cash flows will help you visualize the financial problem
What are the three rules of time travel of money
Comparing and combining values
only possible to compare at the same point in time
Moving Cash flows forward in time
you have to compound FV= Cx(1+r)^n
Moving Cashflows back in time
you must discount PV= C/(1+r)^n
Last changed2 years ago