Calculate Net Present Value (NPV) and the Internal Rate of Return (IRR) using Excel.
Using the company's cost of capital, the net present value (NPV) is the sum of the discounted cash flows minus the original investment.
The internal rate of return (IRR) on a project is the rate of return at which the projects NPV equals zero. At this point, a project's cash flows are equal to the project's costs. Similar to how management must establish a maximum payback period, management must also set what is known as a "hurdle rate", the minimum rate of return a company will accept for a project
Using the company's cost of capital, the net present value (NPV) is the sum of the discounted cash flows minus the original investment.
The internal rate of return (IRR) on a project is the rate of return at which the projects NPV equals zero. At this point, a project's cash flows are equal to the project's costs. Similar to how management must establish a maximum payback period, management must also set what is known as a "hurdle rate", the minimum rate of return a company will accept for a project
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