Initiating and Selecting Projects

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Financial Projections

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Net Present Value

Higher NPV means

NPV =

Return on Investment

Required Rate of Return

Internal rate of return

Payback Analysis

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Calculate expected monetary GAIN or LOSS from a project by DISCOUNTING all expected future cash inflows and outflows to the present point in time.

Difference in project COSTS and project BENEFITS divided by PROJECT COSTS - %, higher is better

What DISCOUNT RATE results in an NPV of ZERO

SPECIFIED by the organisaiton - minimum rate of return on investment

Total Discounted Benefits - Total Discounted Costs - discount factor 1/ (1+r) pwr t (no. years)

amount of time taken for net cash inflow to recoup the total money invested in the project - i.e. how much TIME until ACCRUED BENEFITS overtake ACCRUED CONTINUING COSTS. (i.e. cumulative benefits - cumulative costs = 0)

higher RETURN for project in comparison to the OPPORTUNITY COST of capital (return available from investing it elsewhere)


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