NPV and other Investment Criteria

Annotations:

• Analysis of any potential addition of fixed assets, long term, high cost

1. Steps
   1. Estimating Cash Flows
   2. Estimating risk of CFs and determining appropriate cost of capital
   3. Evaluate projects and accept or reject
      1. Criteria
         1. Time Value of Money?
         2. Risk Adjust?
         3. Creates Value?

1. Net present Value

   Annotations:

   • Difference in investments market value and cost. If NPV for future cash flows within a certain time span is positive, investment is viable
   1. Discounted Cash Flow Valuation

      Annotations:

      • Cash flow after discounting. Find the Present value of future cash flows
2. Payback Period

   Annotations:

   • Number of years req. to recover costs. Accept if it is within a pre-set limit
   1. Strenghts
   2. Weaknesses
   3. Discounted Payback Period
3. Average Accounting Ratio (profitability Ratio)
   1. Strenghts
   2. Weaknesses
4. IRR
5. Enter text here