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WHAT TO DISCOUNT

WHAT TO DISCOUNT. 1.Only cash flow is relevant. 2. Estimate incremental (after tax) cash flows. 3. Be consistent in treatment of inflation. 4. Recognize project interactions. 10%. MIRR =16.5%. Crossover Point = 8.7%. 1. Estimate the Cash flows. 2. Assess the riskiness of the cash flows.

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WHAT TO DISCOUNT

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  1. WHAT TO DISCOUNT 1.Only cash flow is relevant. 2. Estimate incremental (after tax) cash flows. 3. Be consistent in treatment of inflation. 4. Recognize project interactions.

  2. 10%

  3. MIRR =16.5%

  4. Crossover Point = 8.7%

  5. 1. Estimate the Cash flows. 2. Assess the riskiness of the cash flows. 3. Determine the appropriate discount rate. 4. Find the PV of the expected cash flows. 5. Accept the project if PV of inflows > costs Definitions: Independent versus mutually exclusive projects. Normal versus nonnormal projects.

  6. Project L: If the projects are independent, accept both projects. If the projects are mutually exclusive, accept Project S since PIS>PIL.

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