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Net Present Value and Other Investment Criteria


After studying this chapter, you should be able to:

  1. Calculate the net present value of an investment.


  2. Use the net present value rule to analyze three common problems that involve competing projects: (a) when to postpone an investment expenditure, (b) how to choose between projects with unequal lives, and (c) when to replace equipment.


  3. Understand the payback rule and explain why it doesn't always make shareholders better off.


  4. Calculate the internal rate of return of a project and know what to look out for when using the internal rate of return rule.


  5. Calculate the profitability index and use it to choose between projects when funds are limited.










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