Exercise 1

In thousands
Taxable Life 3
Equipment Cost 75
NWC 0
Rve (Sales) 60
Oper. Exp 25
Required r N/A
Tax T 0.35 1 2 3 4
Depr. MACRS Rates 0.33 0.45 0.15 0.07 100%
Salavage 0 Depr 24.75 33.75 11.25 5.25

Cash outflow 0 1 2 3 4
FCInv -75
+ NWC 0
= Total Outflow -75 0 0 0 0

Cash inflow 0 1 2 3 4
Sales 60 60 60 60
- Opr Exp -25 -25 -25 -25
= EBITDA 35 35 35 35
- Dep -24.75 -33.75 -11.25 -5.25
= EBIT 10.25 1.25 23.75 29.75
-T -3.59 -0.44 -8.31 -10.41

EBIT*(1-T) = NOPAT 6.66 0.81 15.44 19.34

+ Dep 24.75 33.75 11.25 5.25
= OCF 31.41 34.56 26.69 24.59
+ NWC
+ Net Salvage
= Total Inflow 0 31.41 34.56 26.69 24.59
IN - OUT = Total Cash Flow -75.00 31.41 34.56 26.69 24.59

Answer
 Exercise 2
In millions
Equipment Cost 20 Net Salvage = Salv - (Salv- BVT)*T
Depreciation status 75% (25% left to depreciate)
Salvage 6 BV = (1-0,75)*Equipment cost =
Tax T 0.4
Net Salv =

5 to 10

5
60
-25
35

35.00
-12.25

22.75
0.00
22.75
0
0
22.75
22.75
 Exercise 3
In thousands
e = Salv - (Salv- BVT)*T Project Life 3 Operating CF:
Equipment Cost 65 CF = (S - E - D)*(1-T) +D
(1-0,75)*Equipment cost = 5 NWC 10
Rve (Sales) 70 Net Salvage
6 - (6 - 5)*0,4 = 5.6 Oper. Exp 25 Salv - (Salv- BVT)*T
Required r 0.1
Tax T 0.35
Depr. SL 21.67
Salavage 0

NPV = -𝐼_0 +
∑24_1^𝑛▒ 〖𝐶𝐹〗
〖 (1+𝑟) 〗 ^𝑡
r= 0.1
0 1 2
CFs -75.00 36.83 36.83
Disc CFs -75.00 33.48 30.44
Cumul Dis CFs -75.00 -41.52 -11.07

breakeven
Extra: DPB = 2 + (11,07/35,19) = 2
Interpretation: It takes 2.315 years to b

PI = "PV of all Future C

Extra: Profitability index =
NPV/I_0
Found this way 1.3215
or
Found this way 1.3215
 Operating CF:
CF = (S - E - D)*(1-T) +D Cash outflow 0 1 2 3
FCInv 65
Net Salvage + NWC 10
Salv - (Salv- BVT)*T = Total Outflow 75 0 0 0

Cash inflow 0 1 2 3
Sales 70 70 70
- Opr Exp -25 -25 -25
= EBITDA 45 45 45
- Dep -21.67 -21.67 -21.67
= EBIT 23.33 23.33 23.33
- T (=0,35) -8.17 -8.17 -8.17
= NOPAT 15.17 15.17 15.17
+ Dep 21.67 21.67 21.67
= OCF 36.83 36.83 36.83
+ NWC 10
+ Net Salvage 0
= Total Inflow 0 36.83 36.83 46.83
IN - OUT = Total Cash Flow -75.00 36.83 36.83 46.83

NPV = -𝐼_0 + NPV = -75+ 36,83/ 〖 1,1 〗 ^1 +

∑24_1^𝑛▒ 〖𝐶𝐹〗 _𝑡/ 36,83/ 〖 1,1 〗 ^2 +
〖 (1+𝑟) 〗 ^𝑡 46,83/ 〖 1,1 〗 ^3
3 NPV 24.112
46.83 = NPV(rate,range of values)+investment
35.19
24.11 IRR 26.74%
= IRR(range of values including initial investment)

DPB = 2 + (11,07/35,19) = 2,315

tion: It takes 2.315 years to beakeven (NPV=0)

PI = "PV of all Future CFs" /I_0 = 1 +

NPV/I_0
(Click on the cell to understand)

(Click on the cell to understand)

 Exercise 4
In thousands Operating CF:
Project Life 3 CF = (S - E - D)*(1-T) + D
Equipment Cost 4
NWC 0.9 NWC = Receivables + Inventories - Payables = 0,6 + 0
Rve (Sales) Will increase by 6%
Oper. Exp
Required r 0.1 1 2
Tax T 0.4 Rates 0.33 0.45
Depr. MACRS Depr 1.32 1.8
Salavage 1
EBITDA 2 Will increase by 5%
NWC = Receivables + Inventories - Payables

Cash outflow 0 1 2 3
FCInv 4
+ NWC 0.9 0.054 0.057 We needed 6% more every BEGIN
= Total Outflow 4.9 0.054 0.057 0

Cash inflow 0 1 2 3
Sales
- Opr Exp
= EBITDA 2 2.1 2.205
- Dep -1.32 -1.80 -0.60
= EBIT 0.68 0.30 1.605

-T -0.27 -0.12 -0.64

= NOPAT 0.41 0.18 0.963
+ Dep 1.32 1.80 0.60
= OCF 1.73 1.98 1.563
+ NWC 1.01124
+ Net Salvage 0.712
= Total Inflow 0 1.73 1.98 3.286
IN - OUT = Total Cash Flow -4.900 1.674 1.923 3.286

NPV = -𝐼_0 + ∑24_1^𝑛▒ NPV = -4,9 + 1,674/ 〖 1,1 〗 ^1 +

〖𝐶𝐹〗 _𝑡/ 〖 (1+𝑟) 〗 ^𝑡 1,923/ 〖 1,1 〗 ^2 + 3,286/ 〖 1,1 〗
NPV 0.680 ^3
= NPV(rate,range of values)+investment
IRR 16.86%
= IRR(range of values including initial investment)
 Net Salvage
Salv - (Salv- BVT)*T = 1 - (1 - 0,28)*0,4 = 0.712

s + Inventories - Payables = 0,6 + 0,8 - 0,5 = 0.9

per year

3 4
0.15 0.07 100%
0.6 0.28

per year

We needed 6% more every BEGINNING of year of the NWC to continue financing the project

^1 +
/ 〖 1,1 〗
Exercise 5 Replacement: Using the difference betwe
In thousands
Project Life 3
New Equip. Cost 14 Initial Outlay = FCInv + NWC - [Salv. Of Old Equip. - T
NWC 0 = 14 + 0 - [1,5 - 0,4*(1,5 - 3)]
Salvage of old equip. 1.5 11.9
BVold 3
Changes in:
Rve (Sales) 0 1
Oper. Exp -7 Rates 0.33
Depr New Equip. Depr (MACRS) 4.62
Old Equip. Depr (SL) 1
Change in depr 3.62
Required r 0.16
Tax T 0.4 Net Salvage = Salv - (Salv- BVT)*T
Salavage of new equip. 2 = 2 - (2 - 0,98)*0,4
1.592

Cash outflow 0
FCInv 11.9
+ NWC 0
= Total Outflow 11.9

Cash inflow 0
ΔS

- ΔE
= ΔEBITDA
- ΔDep
= ΔEBIT
-T
= ΔNOPAT
+ ΔDep
= ΔOCF
+ NWC
+ Net Salvage
= Total Inflow 0
IN - OUT = Total Cash Flow -11.900

NPV = -𝐼_0 + NPV = -11,9 + 5,648/ 〖 1,16 〗

∑24_1^𝑛▒ 〖𝐶𝐹〗 _𝑡/ + 6,32/ 〖 1,16 〗 ^2 +
〖 (1+𝑟) 〗 ^𝑡 NPV〖 1,16
6,232/ 1.658〗 ^3
= NPV(rate,range of values)+inv
IRR 24.19%
= IRR(range of values including i
e difference between New and Old in evey component of CF

NWC - [Salv. Of Old Equip. - T*(Salv of Old Equip. - BV old)]

4 + 0 - [1,5 - 0,4*(1,5 - 3)]

2 3 4
0.45 0.15 0.07 100%
6.3 2.1 0.98
1 1
5.3 1.1 0.98

- (2 - 0,98)*0,4

1 2 3
In replacement projects, we need to think in terms of change:
Difference between new and old
0 0 0 ΔOCF = Δ(S - E - D)*(1-T) + ΔD

1 2 3
0 0 0

7 7 7
7 7 7
-3.62 -5.30 -1.10
3.38 1.70 5.90
-1.35 -0.68 -2.36
2.03 1.02 3.54
3.62 5.30 1.10
5.65 6.32 4.64
0
1.592
5.65 6.32 6.23
5.648 6.320 6.232

1,9 + 5,648/ 〖 1,16 〗 ^1

〖 1,16 〗 ^2 +
〖 1,16 〗 ^3
NPV(rate,range of values)+investment
RR(range of values including initial investment)
Exercise 6
Q.1 0 1 2 3
CFA -1 0.3 0.31 0.32
Cumul. CFA -1 -0.7 -0.39 -0.07

Regular Payback for A: Number of years just before Cumul CF turns positive
+ % of how much we took from the next CF to
= 3 + (0,07/0,33)

0 1 2 3
CFB -1 0.5 0.3 0.2
Cumul. CFB -1 -0.5 -0.2 0

Regular Payback for A: Number of years just before Cumul CF turns positive
+ % of how much we took from the next CF to
=3 + 0 =
Project B takes less time to recover. Therefore, we should pick project B!
Q.2
NPVA = -1 + 0,3/ 〖 1,1 〗 ^1 +
0,31/ 〖 1,1 〗 ^2 + 0,32/ 〖 1,1 〗 ^3 +
NPVA〖 1,1
0,33/ 〗 ^4 + 0,34/ 〖 1,1 〗 ^5
0.206
= NPV(rate,range of values)+investment
Or = Sum of all discounted CFs
0.206
Verdict NPVA > 0 A can be considered

Q.3 IRRA 17.59%

= IRR(range of values including initial investment)

If no excel or Financial Calculator: Use following method:

If you have NPV>0, Try higher r (for more discounting) to reduce your
If you have NPV<0, Try Lower r (for more discounting) to incease you

Project A
Rate NPV
17% 0.01383
IRR 0
18% -0.0955

(18%−17%)/
(−0,0955−0,01383) =
(𝐈𝐑𝐑−17%)/(0−0,01383
IRR A17.13%
)
 (18%−17%)/
(−0,0955−0,01383) =
(𝐈𝐑𝐑−17%)/(0−0,01383
) Any which way we go is fine! We just need to follow the

Verdict IRRA > r A can be considered

r is our Required Rate of Return RRR or rate requested by potential in

Question? What happens if NPV and IRR show different results in case we compare 2 mutuall
For instance:
NPV results tells us to pick A
IRR results tell us to pick B

If we find ourselves in this situation, we follow the NPV finding

So we pick A!
 Extra: r = 0.1
4 5 0 1 2 3
0.33 0.34 Disc CFA -1 0.273 0.256 0.240
0.26 0.6 Cum. Dis. CFA -1 -0.727 -0.471 -0.231

before Cumul CF turns positive Discounted Payback for A: Number of years just before Cumul of Disc. CF t
much we took from the next CF to Breakeven + % of how much we took from the ne
= 3.21 years = 4 + (0,005/0,211)
= 4.02 years
Extra: r = 0.1
4 5 0 1 2 3
0.1 0.1 Disc CFB -1 0.455 0.248 0.150
0.1 0.2 Cum. Dis. CFB -1 -0.545455 -0.297521 -0.147258

before Cumul CF turns positive Notice that the Cumul of Disc CFs never turned positive. Project was not able
much we took from the next CF to Breakeven Bad sign !!
3.00 years
e should pick project B!

NPV = -𝐼_0 + NPVB = -1 + 0,5/ 〖 1,1 〗 ^1 +

1 〗 ^3 + ∑24_1^𝑛▒ 〖𝐶𝐹〗 _𝑡/ 0,3/ 〖 1,1 〗 ^2 + 0,2/ 〖 1,1 〗 ^3 +
〗 ^5 〖 (1+𝑟) 〗 ^𝑡 NPV
0,1/ 〖 1,1B〗 -0.017
^4 + 0,1/ 〖 1,1 〗 ^5
= NPV(rate,range of values)+investme
Or = Sum of all discounted CFs
-0.017
sidered NPVB < 0 B cannot be co

IRRB 9.08%
investment) = IRR(range of values including initial i

more discounting) to reduce your NPV

more discounting) to incease your NPV

Project B
Rate NPV
10% -0.01687
IRR 0
9% 0.00149
(9%−10%)/(0,00149−
(−0,01687)) =
(𝐈𝐑𝐑−10%)/(0−(−0,01687))
IRR 9.08%
B
is fine! We just need to follow the same direction !!

sidered IRRB < r B cannot be considered

R or rate requested by potential investors to finance our projects.

ults in case we compare 2 mutually exclusive projects?

, we follow the NPV finding

 Exercise 7
4 5 In Billions
0.225 0.211 0.206 Project Life 12
-0.005 0.206 Equipment Cost 1.5
NWC 0.4
before Cumul of Disc. CF turns positive Rve (Sales) 0.1
much we took from the next Disc. CF to Breakeven Oper. Exp -0.25
BVT 0

Required r 0.12
4 5 Tax T 0.4
0.068 0.062 -0.017 Depr. SL (6y) 0.25
-0.078956 -0.016864 Salavage 0.5
NPV old 0.41
tive. Project was not able to breakeven NWC = Receivables + Inventories - Payables

Cash outflow 0
FCInv 1.5
+ NWC 0.4
,1 〗 ^1 + = Total Outflow 1.9
0,2/ 〖 1,1 〗 ^3 +
0,1/ 〖 1,1 〗 ^5 Cash inflow 0
ange of values)+investment Sales
discounted CFs - Opr Exp
= EBITDA
B cannot be considered - Dep
= EBIT
-T
= NOPAT
of values including initial investment) + Dep
= OCF
+ NWC Q.1
+ Net Salvage
= Total Inflow 0.00
IN - OUT = Total Cash Flow -1.90

Q.3 NPV = -𝐼_0 + ∑24_1^𝑛▒ 〖𝐶

𝐹〗 _𝑡/ 〖 (1+𝑟) 〗 ^𝑡

NPV = -1,9 + 0,31/ 〖 1,12 〗 ^1 + 0,31/ 〖

〖 1,12 〗 ^5 + 0,31/ 〖 1,12 〗 ^6 + 0,2
0,21/ 〖 1,12 〗 ^10 + 0,21/ 〖 1,12 〗 ^1
NPV = -1,9 + 0,31/ 〖 1,12 〗 ^1 + 0,31/ 〖
0,31/ 〖 1,12 〗 ^5 + 0,31/ 〖 1,12 〗 ^6
0,21/ 〖 1,12 〗 ^10 + 0,21/ 〖 1,12 〗 ^1
 NPV = -1,9 + 0,31/ 〖 1,12 〗 ^1 + 0,31/ 〖
0,31/ 〖 1,12 〗 ^5 + 0,31/ 〖 1,12 〗 ^6
0,21/ 〖 1,12 〗 ^10 + 0,21/ 〖 1,12 〗 ^1
NPV = -1,9 + 0,31* ("(1-" 〖 1,12 〗 ^(−6) "
〖 1,12 〗 ^(−6) ")" )/0,12* 〖 1,12 〗 ^(−

NPV -0.008
= NPV(rate,range of values)+investment
IRR 11.91%
= IRR(range of values including initial inves

Verdict NPV<0
IRR<12%

Q.4 Moving from SL Depreciation to MACRS Depreciation increases

What happens to the Operating CF?
Example:
Under SL
EBITDA 100
- Depr 20
= EBIT 80
- T (40%) 32
= NOPAT 48
+ Depr 20
OCF 68

OCF Increased by 4 (=72-68)

That's the amount of Tax savings made
aT = (30-10)*0,4 = 4

The rule is as follow:

When D goes up by "a", OCF will go up by the tax
When D falls by "a", OCF will fall by the tax loss (=

Answer to Q.4: Moving from SL Depreciation to MACRS D

When D goes up, OCF will go up by the am

How about the NPV?

The discounting of early CFs have less effect than the discountin
Early CFs are discounted at lower powers
 Later CFs are discounted at heavier powe

When D goes up, we will have larger early CFs, then the later on
If early CFs are heavier, and discounted a

So, higher CFs in earlier years + lower discounting

The higher the early CFs, the higher the NPV

Q.5 Equip. Cost Savings 0.24

Long method

Cash outflow 0
FCInv 1.26
+ NWC 0.4
= Total Outflow 1.66

Cash intflow
Sales
- Opr Exp
= EBITDA
- Dep
= EBIT
-T
= NOPAT
+ Dep
= OCF
+ NWC
+ Net Salvage
= Total Inflow
IN - OUT = Total Cash Flow -1.66

NPV = -1,66 + 0,294* ("(1-" 〖 1,12 〗 ^(−6) ")" )

〖 1,12 〗 ^(−6) ")" )/0,12* 〖 1,12 〗 ^(−6) + 0

NPV 0.166
NPVold -0.008
 Net Salvage = Salv - (Salv- BVT)*T
0.300

Initial Outlay = FCInv + NWC - [Salv. Of Old Equip. - T*(Salv of Old Equip. - BV old)]
1.9
Q.2

es - Payables

1 2 3 4 5 6 7 8

0 0 0 0 0 0 0 0

1 2 3 4 5 6 7 8
0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25
0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35

-0.25 -0.25 -0.25 -0.25 -0.25 -0.25

0.10 0.10 0.10 0.10 0.10 0.10 0.35 0.35
-0.04 -0.04 -0.04 -0.04 -0.04 -0.04 -0.14 -0.14
0.06 0.06 0.06 0.06 0.06 0.06 0.21 0.21
0.25 0.25 0.25 0.25 0.25 0.25
0.31 0.31 0.31 0.31 0.31 0.31 0.21 0.21

0.31 0.31 0.31 0.31 0.31 0.31 0.21 0.21

0.31 0.31 0.31 0.31 0.31 0.31 0.21 0.21

_1^𝑛▒ 〖𝐶
〗 ^𝑡

/ 〖 1,12 〗 ^1 + 0,31/ 〖 1,12 〗 ^2 + 0,31/ 〖 1,12 〗 ^3 + 0,31/ 〖 1,12 〗 ^4 + 0,31/

0,31/ 〖 1,12 〗 ^6 + 0,21/ 〖 1,12 〗 ^7 + 0,21/ 〖 1,12 〗 ^8 + 0,21/ 〖 1,12 〗 ^9 +
^10 + 0,21/ 〖 1,12 〗 ^11 + 0,91/ 〖 1,12 〗 ^12
/ 〖 1,12 〗 ^1 + 0,31/ 〖 1,12 〗 ^2 + 0,31/ 〖 1,12 〗 ^3 + 0,31/ 〖 1,12 〗 ^4 +
^5 + 0,31/ 〖 1,12 〗 ^6 + 0,21/ 〖 1,12 〗 ^7 + 0,21/ 〖 1,12 〗 ^8 + 0,21/ 〖 1,12 〗 ^9 +
^10 + 0,21/ 〖 1,12 〗 ^11 + 0,21/ 〖 1,12 〗 ^12 + 0,7/ 〖 1,12 〗 ^12
 / 〖 1,12 〗 ^1 + 0,31/ 〖 1,12 〗 ^2 + 0,31/ 〖 1,12 〗 ^3 + 0,31/ 〖 1,12 〗 ^4 +
^5 + 0,31/ 〖 1,12 〗 ^6 + 0,21/ 〖 1,12 〗 ^7 + 0,21/ 〖 1,12 〗 ^8 + 0,21/ 〖 1,12 〗 ^9 +
^10 + 0,21/ 〖 1,12 〗 ^11 + 0,21/ 〖 1,12 〗 ^12 + 0,7/ 〖 1,12 〗 ^12
* ("(1-" 〖 1,12 〗 ^(−6) ")" )/0,12 + "0,21* " ("(1−"
")" )/0,12* 〖 1,12 〗 ^(−6) + 0,70/ 〖 1,12 〗 ^12

e,range of values)+investment

e of values including initial investment)

Best to reject the Regional distribution center expansion project

o MACRS Depreciation increases Depr

Under MACRS
100
30 When we incur more Depr expenses, OCF goes up.
70 Why?
28 Let's suppose Depr goes up by a: Let's suppose Depr falls by a:
42 Sales
30 - Exp. -
72 - (D + a) -
= EBIT - a =
eased by 4 (=72-68) * (1-T) *
e amount of Tax savings made = EBIT*(1-T) - a*(1-T) =
10)*0,4 = 4 + (D + a) +
= EBIT*(1-T) - a*(1-T) + (D + a) =
= EBIT*(1-T) + (D + a) - a*(1-T) =
= OCFbefore + aT =

Tax savings

OCF will go up by the tax savings (= a*T, with a the increase in D)

F will fall by the tax loss (= a*T, with a the decrease in D)

from SL Depreciation to MACRS Depreciation increases Depr

goes up, OCF will go up by the amount of tax savings = a*T

ave less effect than the discounting of the farther CFs down the time line
s are discounted at lower powers
s are discounted at heavier powers

larger early CFs, then the later ones.

CFs are heavier, and discounted at lower powers
The NPV value strengthens !
years + lower discounting impact in earlier years: This would increase NPV value
s, the higher the NPV

Lower Depreciable base 1.26 DeprNew 0.21 per year for the first 6 years
(=1,5-0,24) (=1,26/6)

Short method
1- Lower Equip. Cost means immediate increase of NPV by 0,24 billion
1 to 6 7 to 11 12 2- When Depr falls, the OCF will fall by the Tax Savings amount
D fell by 0,04 (=0,25 - 0,21), in the first 6 years
The OCF from year 1 to 6 will fall by 0,04*T = 0,016
0 0 0

Therefore:
0.1 0.1 0.1 NPVnew = NPVold + 0,24 - 0,016* ("(1-"
0.25 0.25 0.25
0.35 0.35 0.35
〖 1,12 〗 ^(−6) ")" )/0,12
-0.21 0.17422
0.14 0.35 0.35
-0.056 -0.14 -0.14
0.084 0.21 0.21
0.21
0.294 0.21 0.21
0.4
0.300
0.294 0.21 0.91
0.294 0.21 0.91

(1-" 〖 1,12 〗 ^(−6) ")" )/0,12 + "0,21* " ("(1−"

12* 〖 1,12 〗 ^(−6) + 0,70/ 〖 1,12 〗 ^12

NPV went up by 0.17422

(=0,16585 - (-0,008))
 MCQ Answers:
1-Answer C. NPV=0 when r is the project's IRR. So, if r is 10
2-Answer C. It is the NPV. The NPV considers all the CFs an
3-Answer D. If PBA < PBB , it only means that there is a chan
4-Answers B & D.
B If IRR<r, means, the project is not providing the
D For 2 mutually exclusive projects, we pick the o
ld Equip. - BV old)] If both NPV>0, we choose the highest NPV
If one NPV>0 and the other <0, we pick the pos
If both NPV<0, we drop both
Therefore, we do not always pick the project w
5-Answer B. A project with an NPV>0 enjoys an IRR than ca

9 10 11 12

0 0 0 0

9 10 11 12
0.1 0.1 0.1 0.1
0.25 0.25 0.25 0.25
0.35 0.35 0.35 0.35

0.35 0.35 0.35 0.35

-0.14 -0.14 -0.14 -0.14
0.21 0.21 0.21 0.21

0.21 0.21 0.21 0.21

0.4
0.300
0.21 0.21 0.21 0.91
0.21 0.21 0.21 0.91

Q.2

〗 ^4 + 0,31/
2 〗 ^9 +

〗 ^4 +
〖 1,12 〗 ^9 +
〗 ^4 +
〖 1,12 〗 ^9 +

et's suppose Depr falls by a:

Sales
Exp.
(D - a)
EBIT + a
(1-T)
EBIT*(1-T) + a*(1-T)
(D - a)
EBIT*(1-T) + a*(1-T) + (D - a)
EBIT*(1-T) + (D - a) + a*(1-T)
OCFbefore - aT

Tax loss
 Original D 0.25

e increase of NPV by 0,24 billion at t=0

the Tax Savings amount

6 will fall by 0,04*T = 0,016

16* ("(1-"
 project's IRR. So, if r is 10%, and NPV = 0, then the discounting rate (that happens to be 10%) is the project's IRR (=10%)
V considers all the CFs and time value of money. The Discounted Payback also consider the time value of money, but not all CFs. It is o
means that there is a chance that project A's cost might be recovered earlier. It does not say that it might better or worse, because it do

oject is not providing the (minimum) required return. Remember that we're discounting at r. So, if we're discounting at a higher rate t
ve projects, we pick the one with the highest NPV.
ose the highest NPV
other <0, we pick the positive NPV

always pick the project with higher NPV no matter what the signs are (i.e. if both NPV<0, but one is closer to zero, so we pick it, NO!) T
V>0 enjoys an IRR than can more than satisfy the potential investors' required (minimum) r. therefore, a succesful investment with an
 ject's IRR (=10%)
of money, but not all CFs. It is only interested in the CFs 'Discounted CFs) that are needed to cover the initial outlay. The additional CF
ht better or worse, because it does not consider CFs after the breakeven, nor it does consider the time value of money (so we can rule

're discounting at a higher rate than IRR. With IRR, we will have NPV=0. With higher rate than IRR, the NPV will become negative (high

ser to zero, so we pick it, NO!) They are both negative so we drop them both. We pick the project with the largest and positive NPV
a succesful investment with an NPV>0, will definitely generate an IRR>r !
initial outlay. The additional CFs that come after are not considered.
value of money (so we can rule out any affiliation to NPV)

NPV will become negative (higher discounting, lower value of NPV). Therefore, when IRR<r, NPV<0.

the largest and positive NPV