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February 05, 2009
Investment Decisions
Invest if:
1. The present value of the costs is greater than the present value of the benefits, or
2. The rate of return is greater than the interest rate on money borrowed to finance the project.
The first criterion is easier to calculate and will be used in class. The second is common in the outside world because it abstracts from detailed numbers and applies across projects.
Posted by bparke at February 5, 2009 08:12 PM