NPV & IRR

When investing, borrowing, or making other economic decisions, it is important to be able to compare alternative opportunities using an objective yardstick, regardless of the pattern of the cash flows that result from each opportunity.

 

The purpose of this course is to provide a framework for analyzing alternative investments. Using the fundamental concepts of present value and discounting, it is possible to evaluate most kinds of financial assets and liabilities in the common framework of net present value, or NPV.

 

While NPV is not the only relevant evaluation measure, it is usually the starting point in measuring different alternative investments, and the one to which most other measures of investment value relate.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Determine the best set of cash flows from different investment alternatives by calculating the net present value (NPV) of the investment opportunities

    Calculate the internal rate of return (IRR) on an investment and use this in conjunction with NPV to decide between investment alternatives

    Explain how reinvestment assumptions affect a decision based on IRR

    Understand the concepts of the payback period and the discounted payback period as alternatives to NPV and IRR

  • COURSE OUTLINE

    Topic 1: Net Present Value (NPV)

    What is NPV?

    NPV- Example

    NPV & Mutual Exclusivity

    Additvity  of NPVs

    Topic 2: Internal Rate of Return (IRR)

    What is IRR?

    IRR – Example

    Choosing the Best Investment

    IRR & Reinvestment Risk

    Topic 3: Payback Period

    What is the Payback Period?

    Payback Period – Example

    Discounted Payback Period

    Topic 4: NPV & IRR as Decision Rules

    NPV vs. IRR

    Mutually Exclusive Investments – Example

    Choosing the Best Investment

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

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