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The NPV decision rule needs that a company invest in all projects that have a positive net present value. This presumes that sufficient funds are available for all incremental projects which are only true in a perfect capital market. When inadequate funds are available that is when capital is rationed projects cannot be selected by ranking by absolute NPV. Selecting a project with a large NPV may signify not choosing smaller projects that in combination give a higher NPV. In its place if projects are divisible they are able to be ranked using the profitability index in order make the optimum selection. If projects aren't divisible different combinations of available projects should be evaluated to select the combination with the highest NPV.
Basic Assumptions of Cost of Capital The Cost of Capital is a dynamic concept affected by a multiplicity of economic and firm factors and assumes the following assumptions rela
A developer has purchased a commercial office site in Melbourne and wishes to develop a building which will be sold to an institutional owner before completion of the building.
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Q. Example on compound value of the single flow? Mr. X invests Rs. 1000 at 10% is compounded yearly for three years. Compute value after three years. FV = PV (1+i) n FV
Assume that you can receive $25,000 per year forever and that your cost of money is 7%. What is this opportunity worth today?
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