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Capital Budgeting

NPV & IRR

NPV = CF0+ [CF1/(1+k)] + [CF2/(1+k)2]+….+[CFn/ /(1+k)n]

IRR: Discount rate that makes NPV equal to 0.

Payback Period

Payback period is number of years it takes to recover initial project cost.

Discount payback uses present values of cash flows.




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