Investments. Cash flow

1. INVESTMENTS

Ivan Kotliarov
[email protected]

2. CASH FLOW

• Net amount of cash being transferred in
and out of a business during a given
period of time

3. PAYBACK PERIOD

• Number of years necessary for the
complete compensation of investments

4. PAYBACK PERIOD

Period
Cash Flow
0
- 1000
1
200
2
300
3
400
4
500
5
600

5. PAYBACK PERIOD

6. NET PRESENT VALUE

7. NET PRESENT VALUE

Period
Cash Flow
0
- 1000
1
200
2
300
3
400
4
500
5
600

8. NET PRESENT VALUE

• NPV > 0: invest
• NPV < 0: do not invest
• NPV = 0: what to do?

9. PROFITABILITY INDEX

10. NPV and PI

NPV > 0
PI > 1
NPV < 0
PI <1
NPV = 0
PI = 1

11. INTERNAL RATE OF RETURN

12. INTERNAL RATE OF RETURN

• Maximal cost of capital;
• Degree of risk;
• Does not require information about
discount rate (does not depend on the
value of the discount rate);
• May not exist

13. INVESTMENT PROJECTS

Standard Projects
Non-standard Projects
• Standard Cash Flows
(just one change of sign)
• Non-standard Cash
Flows (more than one
change of sign)