3.4 Product Project Evaluation
<<Financial decision making frequently rests on investing on projects which
can provide a positive NPV. NPV or Net Present Value evaluates a project
using the following equation:
Where:
The R or Discount Rate is calculated using the CAPM (Capital Asset Pricing
Model), which is as follows:
The Capital Asset Pricing Model (CAPM) is used to calculate the discount
rate as per the following formula:
R = R
f
+
* (R
m
-
R
f
)
where:
R = discount rate
R
f
= risk-free rate of return
= Investment beta
R
m
= market rate of return
