After studying this chapter you will be able to understand: Net present value – exmaples, lease or buy decisions, internal rate of return, risk analysis in investment analysis. | Investment Analysis Lecture: 9 Course Code: MBF702 Outline RECAP Net Present value – exmaples Lease or buy decisions Internal Rate of Return Risk Analysis in investment analysis Quick Check Denny Associates has been offered a four-year contract to supply the computing requirements for a local bank. The working capital is released at the end of the contract. Denny Associates requires a 14% return. 3 Assume the information provided for Denny Associates. Quick Check What is the net present value of the contract with the local bank? a. $150,000 b. $ 28,230 c. $ 92,340 d. $132,916 4 What is the net present value of the contract with the local bank? What is the net present value of the contract with the local bank? a. $150,000 b. $ 28,230 c. $ 92,340 d. $132,916 Quick Check 5 The net present value of the contract is $28,230. Take a minute and review the solution presented. Least Cost Decisions In decisions where revenues are not directly involved, managers should choose the . | Investment Analysis Lecture: 9 Course Code: MBF702 Outline RECAP Net Present value – exmaples Lease or buy decisions Internal Rate of Return Risk Analysis in investment analysis Quick Check Denny Associates has been offered a four-year contract to supply the computing requirements for a local bank. The working capital is released at the end of the contract. Denny Associates requires a 14% return. 3 Assume the information provided for Denny Associates. Quick Check What is the net present value of the contract with the local bank? a. $150,000 b. $ 28,230 c. $ 92,340 d. $132,916 4 What is the net present value of the contract with the local bank? What is the net present value of the contract with the local bank? a. $150,000 b. $ 28,230 c. $ 92,340 d. $132,916 Quick Check 5 The net present value of the contract is $28,230. Take a minute and review the solution presented. Least Cost Decisions In decisions where revenues are not directly involved, managers should choose the alternative that has the least total cost from a present value perspective. Let’s look at the Home Furniture Company. 6 In decisions where revenues are not directly involved, managers should choose the alternative that has the least total cost from a present value perspective. Least Cost Decisions Home Furniture Company is trying to decide whether to overhaul an old delivery truck now or purchase a new one. The company uses a discount rate of 10%. 7 Assume the following: Home Furniture Company is trying to decide whether to overhaul an old delivery truck or purchase a new one. The company uses a discount rate of 10 percent. Here is information about the trucks . . . Least Cost Decisions 8 The information pertaining to the old and new trucks is as shown. Least Cost Decisions 9 The net present value of buying a new truck is negative $32,883. The net present value of overhauling the old truck is negative $42,255. Notice that both NPV numbers are negative because there is no revenue involved – .
