Calculating Net Present Value
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Question -For independent projects, is it true that if PI>0, then NPV>0, and IRR>K?
Is my answer correct?
PI= (I+NPV) / I where I=Investment
if PI>0 then {(I+NPV) / I}>0 which means NPV> -I meaning NPV>0 where <0>
is the limit of I
NPV=0={C1 / (1+IRR)}-I={C1 / (1+k)}-I where C1 is the expected future net
cash flow
that means IRR=K
As stated from the theory and the above equation,
if NPV>0, then, IRR>K
Conclusion:
It is true.
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Solution Summary
The expert calculates the net present value for investments.
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Hello!
Yes, your answer about the PI is correct except that the formula for PI is (PV of Cash Inflows/Investment). More generally, ...
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