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Professor Trainor
11-1
Capital Budgeting Decision
Techniques
Payback period: most commonly used
Discounted Payback, not as common
Computational simplicity
Easy to understand
Focus on cash flow
Disadvantages of payback method:
18 22 25 30 32
NPVSoutheastU .S . $25.7 50
(1.18) (1.18) 2 (1.18)3 (1.18) 4 (1.18)5
18 22 25 30 32
0 50
(1 rSE ) (1 rSE ) 2
(1 rSE ) 3
(1 rSE ) 4
(1 rSE )5
11-14
Advantages and Disadvantages of
IRR
Advantages of IRR:
Disadvantages of IRR
NPV>0
IRR
NPV>0
Discount
NPV<0 NPV<0 rate
IRR
Short-term
IRR = 17%
project
Discount
rate
13% 15% 17%