The document discusses several methods for evaluating capital investment projects, including net present value (NPV), internal rate of return (IRR), payback period, and profitability index. It explains the basic calculations and advantages/disadvantages of each method. NPV is presented as the preferred method since it considers all cash flows and their timing. IRR can also be useful but has limitations when projects have multiple rates of return or differing scales.

1. Net Present Value and Other Investment Rules

17. NPV Payoff Profile If we graph NPV versus the discount rate, we can see the IRR as the x-axis intercept. IRR = 19.44%

20. The Scale Problem (P.175)

21. The Timing Problem 0 1 2 3 $10,000 $1,000 $1,000 -$10,000 Project A 0 1 2 3 $1,000 $1,000 $12,000 -$10,000 Project B

22. The Timing Problem 10.55% = crossover rate 16.04% = IRR A 12.94% = IRR B

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