TAILIEUCHUNG - Thumb for Mechanical Engineers 2011 Part 14

Tham khảo tài liệu 'thumb for mechanical engineers 2011 part 14', kỹ thuật - công nghệ, cơ khí - chế tạo máy phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 380 Rules of Thumb for Mechanical Engineers PV ANNUITY 300K every year t 0 t 4 yr. rv _ 300 000 .2 1- 1 776 620 positive SINGLE CASH FLOW FROM SALVAGE VALUE 80K PV . - 1 I t 0 t 4 yr. PV 38 580 positive Step 3 Sum the PV of all cash flows to obtain the project s overall PV from all future cash flows PV 776 620 38 580 - 97 368 717 832 positive Step 4 Compare the PV of the future cash flows with the project s initial cash flow initial investment The 717 832 PV of the project s future cash inflows positive is clearly greater than the 450 000 negative initial investment. Thus this project has a positive net present value NPV because the PV of the future cash flows are greater than the initial investment. A positive NPV means that the rate of return on the investment is greater than the rate 20 which was used to discount the cash flows. Conclusion The company should buy the additional machinery and increase its production rate. DECISION AND EVALUATION CRITERIA FOR INVESTMENTS AND FINANCIAL PROJECTS How should you decide whether or not to make an investment or go forward with a financial project If you also have a number of alternative investment options how do you decide which is the best alternative How do you evaluate an investment s performance some time period after the investment has been made and the project is up-and-nm-ning There are a number of analysis techniques that can help with these questions. Four separate methods are presented here although each method varies in its effectiveness and complexity. There are also additional methods and techniques that can be found in other engineering economics finance and accounting textbooks. However most modem books and courses in these fields of study recommend the net present value NPV method as the most effective and accurate technique of evaluating potential investments and financial projects. Accounting measures such as rate of return ROR on an investment or return on equity ROE are useful to evaluate a project s .

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