Business management> Notes > FINANCIAL ECONOMICS WEEK 2: FIRM INVESTMENT PROJECT ANALYSIS PART 1/3
FINANCIAL ECONOMICS WEEK 2: FIRM INVESTMENT PROJECT ANALYSIS PART 1/3
TOOLS FOR PROJECT ANALYSIS A. NET PRESENT VALUE (NPV) In Week 1 we briefly looked at how to use NPV to evaluate an investment opportunity. I.e., accept a project if NPV>0, and reject it if NPV<0. In an environment with uncertainty, the NPV methods requires discounting the expected cash flows with a risk-adjusted discount rate. Idea of valuating a project: Project value=discounted value of expected payoffs using riskadjusted returns as discount rates Applying the NPV method to analyze a project amounts to: 1. Estimating and forecasting the project’s cash flows . 2. Finding an appropriate discount rate that reflects the riskiness of the project. ... [Show More]Last updated: 1 year ago
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