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Chapter 2: Project Appraisal: Net...
Learning objectives
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By the end of this chapter you should be able to demonstrate an understanding of the fundamental theoretical justifications for using discounted cash flow techniques in analysing major investment decisions, based on the concepts of the time value of money and the opportunity cost of capital. More specifically you should be able to:
- calculate net present value and internal rate of return;
- show an appreciation of the relationship between net present value and internal rate of return;
- describe and explain at least two potential problems that can arise with internal rate of return in specific circumstances;
- demonstrate awareness of the propensity for management to favour a percentage measure of investment performance and be able to use the modified internal rate of return.
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