Finance For Managers Eduardo Martinez Abascal Pdf -

NPV(new) = -500,000 + Σ(150,000/1.10^t) from t=1 to 5 + 50,000/1.10^5 = -500,000 + 568,620 + 31,046 = €99,666 → Accept.

| Criterion | Formula | Decision Rule | Weakness | |-----------|---------|---------------|----------| | Payback Period | Initial Investment / Annual Cash Flow | Accept if < cutoff | Ignores TVM and cash flows after payback | | Discounted Payback | Same but discounted | Accept if < cutoff | Ignores post-payback | | Net Present Value (NPV) | Σ (CFt / (1+r)^t) – Initial Outlay | Accept if NPV > 0 | Requires accurate discount rate | | Internal Rate of Return (IRR) | Rate that makes NPV = 0 | Accept if IRR > hurdle rate | Multiple IRRs for non-conventional flows | | Profitability Index | PV of future CF / Initial Outlay | Accept if >1 | Ranking issues with mutually exclusive projects | Finance For Managers Eduardo Martinez Abascal Pdf

| Data | Old Machine | New Machine | |------|-------------|-------------| | Initial cost (€) | 0 (already owned) | 500,000 | | Annual savings | — | 150,000 | | Useful life | 2 years | 5 years | | Salvage value | 20,000 | 50,000 | | WACC | 10% | 10% | NPV(new) = -500,000 + Σ(150,000/1