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Capital Budgeting MethodsCapital Budgeting Methods
AGEC 489-689AGEC 489-689
Spring 2010Spring 2010
Page 67 in bookletPage 67 in booklet
Page 67-68 in bookletPage 67-68 in booklet
Page 68 in bookletPage 68 in booklet
Present Value Interest Factor (PIF) Table
PIFr,n = (1 + r) -n
Page 68 in bookletPage 68 in booklet
Page 69 in bookletPage 69 in booklet
NPV > 0 suggests project is economically feasibleNPV = 0 suggests indifferenceNPV < 0 suggests project is economically infeasible
Page 69 in bookletPage 69 in bookletDiscount rate = 5%
Present Value Interest Factor (PIF) Table
PIFr,n = (1 + r) -n
Page 70 in bookletPage 70 in booklet
EPIFr,n = [1 – (1 / (1+ r)n)] / r
Equal Payment Present Value Interest Factor (EPIF) Table
Pages 70-71 in bookletPages 70-71 in booklet
Page 71 in bookletPage 71 in booklet
Page 71 in bookletPage 71 in booklet
EPIFr,n = [1 – (1 / (1+ r)n)] / r
Equal Payment Present Value Interest Factor (EPIF) Table
Page 71-72 in bookletPage 71-72 in booklet
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I will come back to this table when we cover pro forma analysis and how to project the values in this table required in investment analysis.
I will come back to this table when we cover pro forma analysis and how to project the values in this table required in investment analysis.
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Set NPV equal to zero and solve for T, the terminal value.Set NPV equal to zero and solve for T, the terminal value.
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G is the expected rate of appreciation
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Equal net cash flows
Equal net cash flows
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Capital gainstax rate is 25%
Capital gainstax rate is 25%
Equal net cash flows
Equal net cash flows
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Capital gainstax rate is 25%
Capital gainstax rate is 25%
Comparableland values
Comparableland values
Equal net cash flows
Equal net cash flows
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Capital gainstax rate is 25%
Capital gainstax rate is 25%
7% land value appreciation rate
7% land value appreciation rate
Comparableland values
Comparableland values
Equal net cash flows
Equal net cash flows
Page 83 in bookletPage 83 in booklet
Capital gainstax rate is 25%
Capital gainstax rate is 25%
7% land value appreciation rate
7% land value appreciation rate
5% discount rate5% discount rate
Comparableland values
Comparableland values
Equal net cash flows
Equal net cash flows
Page 83 in bookletPage 83 in booklet
Capital gainstax rate is 25%
Capital gainstax rate is 25%
7% land value appreciation rate
7% land value appreciation rate
5% discount rate5% discount rate
Comparableland values
Comparableland values
Equal net cash flows
Equal net cash flows
20 year economic life
20 year economic life
Page 83 in bookletPage 83 in booklet
Page 83 in bookletPage 83 in booklet
Page 83 in bookletPage 83 in booklet
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