Wednesday, August 13, 2008


Got to lecture late and "fixed" a broken table. Good old engineering skills. Lecturer going through an example with a company's projected project expenditure. If the NPV is positive, you can be sure that the IRR will also be positive.

Challenges to budgeting: ensuring consisten forecasts, conflict of interests, forecast bias, identifying good projects. Handling uncertainty meet in projects. Accounting break even is flawed because it doesn't take into account the initial outlay of the investment that needs to be recovered. NPV is better as it turns the initial outlay into an annuity. Sensitivity, scenario and break even analysis.

Going back to inflation. Be consistent in handling inflation. Use nominal interest rates with nominal cash flows. Likewise, use real interest rates with real cash flows. Real analysis is harder.

Composed and transmitted from my iPod Touch

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