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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

Time Value of Money - View Now

ESTIMATED COMPLETED TIME

60 Minutes

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INTRODUCTORY

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Other Courses In:

Building Blocks

Interest Calculations

Time Value of Money

Probability

Distributions & Hypothesis Testing

Estimating Volatility

Correlation & Regression Analysis

Calculus

Indices, Exponents, Logs, & Geometric Series

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