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... lines NPV approaches the t ϭ cash flow (the cost of the project) as the cost of capital increases without limit The reason is that, at an infinitely high cost of capital, the PV of the inflows would... reinvested is the cost of capital, whereas the IRR method assumes that the firm can reinvest at the IRR These assumptions are inherent in the mathematics of the discounting process The cash flows... will use them often in the remainder of the chapter NPV R A N K I N G S D E P E N D Crossover Rate The cost of capital at which the NPV profiles of two projects cross and, thus, at which the projects’
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