Thank you very much for this Tutorial. You indicate that you get multiple IRRs if you have more than 1 year of negative cashflows. What happens if you have an initial investment in year 0 and then project a loss in year 1? E.g. Fish farm where your first year has no sales because you are growing the fish? How do you then compute the IRR(s)?
@@MattMacarty Thank you very much. I was thinking of a business like an agricultural operation where because you have to grow the produce before you can sell and are therefore loss-making in year 1.
Hi Matt - thanks for a really great tutorial. Everything was super clear! I have a couple of questions that I hope you can help with about the IRR forumula (6th minute of video) when you said something along the lines of "If there is more than one year where the net cashflow is negative, then you will get more than one IRR - so this formula is useful only where net cash outflow is in year zero" Question 1) If I have cashflow for a project that occurs over multiple years, as well as some cashin during those years, then how can i calculate the IRR? Question 2) If I have a project with future expansion phases, e.g. Phase 1 with capex in Year 0 and Year 1, then Phase 2 with capex in Year 2 and Year 3, all contributing to the same overall cashflow, then how can I work out the IRR of the overall project? Thanks again!
The kind of projects you describe can be tricky to value with IRR. You can try to ballpark IRR by playing around with NPV until you get it close to 0, This effectively would be the IRR of the project.
Thanks for watching. I mean there are a number of ways to assess return on investment, but yes this measurement is pretty straight forward as a ratio of outflows to net inflows. This is a pretty common calculation in software projects. ROI = (Current Value of Investment - Cost of Investment) / Cost of Investment
agree. i always found those models using future rather discounted cash flows flawed. i can spend in year 0 a million and over 5 years earn 2 million but it is how i earn the two million that matters. wouldn't a front loaded project have better roi than one that has a balloon at the end?
@@MattMacarty www.business-case-analysis.com/return-on-investment.html "PV-Based ROI Conclusions An earlier Case Alpha example stated that the "ROI result for the entire investment life is blind to the timing of inflows and outflows within the investment life." Note especially, however, that statement does not apply to PV-based ROI because the size of the discounting effect is indeed sensitive to cash flow timing. To some analysts, the examples above show how the PV based approach adds useful information to the ROI figures, while to others, the same examples show how PV-data confuse the metric's meaning. And, to many businesspeople, the discussion about front loaded and backloaded cash flow streams no doubt seems "theoretical," probably having little practical value for those making real-world investment decisions or for business planning. Therefore, In the interest of clarity and a meaning that is easily understood, many business analysts, investors, and decision-makers decide that bringing PV-based cash flow into the ROI picture "muddies the waters." Consequently, many prefer to avoid discounted data when using ROI, while leaving time-value-of-money concepts to the metrics meant explicitly to handle them: net present value NPV and internal rate of return IRR. Analysts and decision-makers are free, of course, to use or not use PV-based data for ROI, as they wish. However, those who prefer PV-based ROI's should be sure that everyone involved understands how the ROIs are derived and also how to interpret the discounting effects." Interest rates matter, inflation rates matter, risk matters, timing matters. if the decision maker is unaware of these things, then he should not be a decision maker.
You certainly can include if it fits your need. If you are evaluating several projects taxes will be the same for each so it really wouldn't change anything in absolute terms. I higher NPV before taxes is going to be a higher NPV after taxes too.
I dont mean to be so offtopic but does someone know of a trick to get back into an instagram account?? I stupidly forgot the account password. I would appreciate any assistance you can offer me!
@Steven Samuel thanks for your reply. I got to the site through google and Im waiting for the hacking stuff atm. Takes a while so I will get back to you later with my results.
Matt, thanks for this. Very helpful. I do have a question around ROI. I created a similar spreadsheet as urs. My year 0 investment is 3MM and net annual cashflow for years 1 thru 5 is $9MM. My ROI is only coming out to be 160% when I use your method. Isn't the ROI the return off the $3MM initial investment only? If so, even for the 1st year, shouldn't it be around 300%? (3MM returning 9MM net)
Awesome Vid, What if in year 0, you have a cash inflow rather than cash outflow. Such as borrowing money from the bank at the start, which equates to cash inflow.
What if your initial investment is a loan? I have included loan repayments (principal+interest) in the cash outflow. However, the NPV value drastically changes from 15% to around 6%. Is this right or am I making a mistake somewhere? Thank you
Hi if you are analyzing a loan, the cost of capital includes the interest you are paying on the loan. So as long as your NPV is positive (or 0) you are at least earning back the interest you are paying. This is not the same as a cash flow statement or net operating income. Each serves a purpose, but they are different.
The cumulative numbers show cumulative inflows and outflows to date on the project. Something like this is necessary if you are calculating NPV without the use of the builtin NPV function. To get NPV you subtract the total cash outflow for the life of the project from the total cash inflow. You can make the outflows negative if desired and then adjust your formulas accordingly. It is not necessary as long as you understand that an outflow is an expense and makes the project worth less.
There are many ways to get at the same thing. My stuff tends to be very mechanical, with the idea being it's easier to see what's going on and there is less chance that you make a mistake in a complex formula.
Hello Matt, my question is suppose lets assume , you have a cash flow of EBITDA of $2M for the next 15 years and the purchase price is $15M. I get an IRR of 13%. now how do I calculate the ROI. my EBITDA is not discounted. Can you please answer this,
So you can do it similiarly to the method demonstrated here except it sounds like you are starting with an annual net cash flow. You would have to discount each year by the appropriate factor. Without yearly expenses, it will look a lot more optimistic.
I suppose you can use XNPV, but that one is really for uneven cashflow periods. So maybe I get a cashflow in 6 mos and then another 9 mos later. So yes if you use actual dates and set the initial cash out flow as "today" then you can use XNPV.
HI. Those helper cells are cash inflow less cash outflow. You can download the spreadsheet by following the link in the video or the description section.
HI. Actually I plan to publish a video that covers breakeven. I didn't explicitly cover it in this video because it was getting long. Essentially you look for the year where overall cashflow goes positive and calculate from that.
Can you give me a solution to this question dropped parcel company is considering purchasing new equipment to replace existing equipment that has book value of zero and market value of 15000 new equioment costs 90000 and is expected to provide production savings and increased profits of 20000 per year for the next 10 year new equipment has expected useful life of 10 years after which its estimated salvage value would be 10000 straight line depreciation effective tax rate 34% cost of capital 12% machinary replacement problem should droppitt replace current equipment? calculate NPV profitabiity index IRR
You can download the spreadsheet I used in this video and just plug in your numbers, or use it as the basis to build your own model. There is a link in the video description to download
Cost of capital is usually a blend of the cost of financing a project. So if it is funded entirely with equity, then you could use return on equity. If you blend debt and equity financing, you would weight them according to each contribution to get weighted average cost of capital (WACC). Sometimes an opportunity cost is also factored in to get a hurdle rate. The bottom line is it varies company to company and a higher cost of capital represents a more risky project.
Great, but: 1. Why ignore the cash flows after 5 years? Perhaps after 20 years the present value of the net cash flow will be insignificant, and/or perhaps there are too many unpredictable variables over 20 years so we ignore the effects after some number of years. Is that right? 2. After 3 years, the cumulative cash inflow exceeds the cumulative cash outflow, so you have money you could invest somewhere, supposedly at 12% [interest] / ROI. Do the calculations in this video inherently include the return on that [extra invested money], or should there be another line showing that in year 4 the roughly $20,000 cumulative net gain earned $2400 and in year 5 that $22,400 + year 4's net gain of roughly $137,000 (total $159,400) earned roughly $19,000?
Thanks for your questions. When capital budgeting projects are undertaken, they are typically assigned a lifespan. If it's an IT project you can expect the lifespan will be shorter than say a power plant project. So in my example, the five-year horizon is mostly arbitrary for illustrative purposes. As far as reinvesting any excess cash flows, you can assume that the return on that investment would be the same regardless of the capital project selected. In other words, it doesn't change NPV, and in some respect, reinvestment is included since a higher NPV is better and means more money to reinvest therefore more return in the future.
Thanks. If these calculations were not just for illustrative purposes, would you use the 5-year lifespan or would you extend the lifespan until the present value of future cash flow becomes insignificant? I'm guessing the answer depends on predictability, and for I.T. the future cash flow is unpredictable after 5 years, so a 5-year lifespan makes sense even though the cash flow forecast suggests year 6 will still have a net gain of almost $100,000 in PV. Yes? For a power plant, technological change could still affect the market, but future cash flows are more predictable and therefore the lifespan might be 20 years. Yes?
It would depend on the projected lifespan of the project. In this example, five years might make sense since it is an IT project which may be obsolete after five years. Keep in mind that you would be comparing several similar projects perhaps from different vendors and selecting the one with the highest NPV.
There are several ways to get cost of capital. A textbook example would ask you to calculate WACC which includes the required rate of return on equity and the cost of borrowing. Many times it is given or just estimated. Sometimes analysts adjust the cost of capital based on the riskiness of a project, so they might adjust it upward for projects considered more risky.
Somehow missed this. Only 10 months late... The cash outflow in each year can be thought of as independent of the initial investment. So one I commit to taking on the project, I am also committing to any future cash outflows associated with the project. Even though I will be generating cashflow, there are continuing costs associated.
You determine the value of the perpetuity by dividing the cashflow you will realize indefinitely by the cost of capital. Then just include this as another inflow argument for the IRR function.
For ROI, why do you use NPV as the numerator? That already includes the cost. Shouldn't the numerator only include the "return", i.e. NOPAT? Reference: corporatefinanceinstitute.com/resources/knowledge/finance/what-is-roic/
You can calculate ROI using different methods. At it's most basic it measures net inflows / the cost to generate those inflows which is what my model is doing. Mine is not an accounting model so I am not accounting for taxes or other common income statement items. I am really just trying to show how to get started with comparing capital budgeting projects in terms of economic benefits. Since taxes impact all projects equally, we can usually ignore them. If you have some taxes advantaged project you could just adjust your inflow upward.
Brilliant. And love the Vin Diesel voice. Great tutorial. Thanks Matt.
Thanks. Glad it helped. 1/4 mile at a time...
Wow, I have a final tomorrow morning and these two things were killing me...hours online with(out) my textbook...but you made it so clear. Thanks!
Glad it helped.
simplest model that i can adapt from. we are inherited quite a few in house prepared deal sheets that tweaking. this helps a lot.
Glad it helped
Awesome template for beginners. Easy to understand and sufficient contents
Thanks. Glad it helped
Thank you so much for this insightful video Matt.... you made my life easy! 😊
Glad it helped
thanks Matt, the tutorial is great!
Glad it helped
Brilliant explanation !!!
Glad it helped!
this video worth waaaay more than my 3 hours lecture.
Thanks. Glad it helped
Thanks Matt!
Glad it helped
Thanks Matt....great refresher.
Glad it helped.
Very well explained.
Glad it helped
This tutorial explained a lot of my questions. Thank you so much Sir
Thanks. Glad it helped
Matt Macarty Sir I found in the template provided including BEP which is so much useful but I confuse the function used could u explain ?
No problem. Which function do you mean?
Thank you very much for this Tutorial. You indicate that you get multiple IRRs if you have more than 1 year of negative cashflows. What happens if you have an initial investment in year 0 and then project a loss in year 1? E.g. Fish farm where your first year has no sales because you are growing the fish? How do you then compute the IRR(s)?
It's more of a problem when your NPV goes positive in one year and then negative in a subsquent year.
@@MattMacarty Thank you very much. I was thinking of a business like an agricultural operation where because you have to grow the produce before you can sell and are therefore loss-making in year 1.
Hi Matt - thanks for a really great tutorial. Everything was super clear!
I have a couple of questions that I hope you can help with about the IRR forumula (6th minute of video) when you said something along the lines of "If there is more than one year where the net cashflow is negative, then you will get more than one IRR - so this formula is useful only where net cash outflow is in year zero"
Question 1) If I have cashflow for a project that occurs over multiple years, as well as some cashin during those years, then how can i calculate the IRR?
Question 2) If I have a project with future expansion phases, e.g. Phase 1 with capex in Year 0 and Year 1, then Phase 2 with capex in Year 2 and Year 3, all contributing to the same overall cashflow, then how can I work out the IRR of the overall project?
Thanks again!
The kind of projects you describe can be tricky to value with IRR. You can try to ballpark IRR by playing around with NPV until you get it close to 0, This effectively would be the IRR of the project.
So ROI= NPV/cumulative cash flows? I havent been able to find any other website that says that
Thanks for watching. I mean there are a number of ways to assess return on investment, but yes this measurement is pretty straight forward as a ratio of outflows to net inflows. This is a pretty common calculation in software projects.
ROI = (Current Value of Investment - Cost of Investment) / Cost of Investment
agree. i always found those models using future rather discounted cash flows flawed. i can spend in year 0 a million and over 5 years earn 2 million but it is how i earn the two million that matters. wouldn't a front loaded project have better roi than one that has a balloon at the end?
@@dougmphilly It will depend mostly on the time horizon mostly.
@@MattMacarty www.business-case-analysis.com/return-on-investment.html "PV-Based ROI Conclusions
An earlier Case Alpha example stated that the "ROI result for the entire investment life is blind to the timing of inflows and outflows within the investment life." Note especially, however, that statement does not apply to PV-based ROI because the size of the discounting effect is indeed sensitive to cash flow timing.
To some analysts, the examples above show how the PV based approach adds useful information to the ROI figures, while to others, the same examples show how PV-data confuse the metric's meaning. And, to many businesspeople, the discussion about front loaded and backloaded cash flow streams no doubt seems "theoretical," probably having little practical value for those making real-world investment decisions or for business planning. Therefore, In the interest of clarity and a meaning that is easily understood, many business analysts, investors, and decision-makers decide that bringing PV-based cash flow into the ROI picture "muddies the waters." Consequently, many prefer to avoid discounted data when using ROI, while leaving time-value-of-money concepts to the metrics meant explicitly to handle them: net present value NPV and internal rate of return IRR.
Analysts and decision-makers are free, of course, to use or not use PV-based data for ROI, as they wish. However, those who prefer PV-based ROI's should be sure that everyone involved understands how the ROIs are derived and also how to interpret the discounting effects."
Interest rates matter, inflation rates matter, risk matters, timing matters. if the decision maker is unaware of these things, then he should not be a decision maker.
Brilliant and simply explained! Just one quick question: should one include taxes and depreciation in the outflows?
You certainly can include if it fits your need. If you are evaluating several projects taxes will be the same for each so it really wouldn't change anything in absolute terms. I higher NPV before taxes is going to be a higher NPV after taxes too.
@@MattMacarty thank you
Found it very useful. Thank you :)
Glad it was helpful!
Really good video, thanks.
Thanks. Glad it helped
Really great video!!
Glad you liked it!
Excellent job Matt, also using excel skills made it very interesting to improve the knowledge of excel itself.
Great. Glad it helped.
I dont mean to be so offtopic but does someone know of a trick to get back into an instagram account??
I stupidly forgot the account password. I would appreciate any assistance you can offer me!
@Fox Everett instablaster =)
@Steven Samuel thanks for your reply. I got to the site through google and Im waiting for the hacking stuff atm.
Takes a while so I will get back to you later with my results.
@Steven Samuel it did the trick and I finally got access to my account again. I'm so happy!
Thanks so much you saved my ass :D
God bless you sir
Glad it helped.
Hi Matt. I have a question regarding ROI. Why do you take all outflows and not only the investment amount ($425)?
Because you need to recognize the continuing outflows needed to generate inflows
Matt, thanks for this. Very helpful. I do have a question around ROI. I created a similar spreadsheet as urs. My year 0 investment is 3MM and net annual cashflow for years 1 thru 5 is $9MM. My ROI is only coming out to be 160% when I use your method. Isn't the ROI the return off the $3MM initial investment only? If so, even for the 1st year, shouldn't it be around 300%? (3MM returning 9MM net)
ROI should be the PV of cumulative inflows divided by cumulative outflows.
Awesome Vid, What if in year 0, you have a cash inflow rather than cash outflow. Such as borrowing money from the bank at the start, which equates to cash inflow.
You should consider borrowed money as a cash outflow since you will be using it to purchase an asset.
@@MattMacarty Does this mean that debt repayments are also considered cash outflows
@@dildarbertty176 that is a cost and has to be deducted from the inflow in order to get the net cash flow
this video is good but i want to calculate the project cost and benefits by net present values
You can download the spreadsheet I used and repurpose it to fit your needs: alphabench.com/data/excel-npv-irr-tutorial.html
Thank you so much
Glad it helped
What if your initial investment is a loan? I have included loan repayments (principal+interest) in the cash outflow. However, the NPV value drastically changes from 15% to around 6%. Is this right or am I making a mistake somewhere? Thank you
Hi if you are analyzing a loan, the cost of capital includes the interest you are paying on the loan. So as long as your NPV is positive (or 0) you are at least earning back the interest you are paying. This is not the same as a cash flow statement or net operating income. Each serves a purpose, but they are different.
Thanks but download link does not work.
Seems to be working. Can you try again?
Matt, @ 3:55 min. shouldn't it be total inflow (-) total outflow for the NPV?
Yes, I think I started to reverse it but then corrected it in the video
And the cumulative can you explain what these numbers represents? Should the outflow cumulative be in negative?
The cumulative numbers show cumulative inflows and outflows to date on the project. Something like this is necessary if you are calculating NPV without the use of the builtin NPV function. To get NPV you subtract the total cash outflow for the life of the project from the total cash inflow. You can make the outflows negative if desired and then adjust your formulas accordingly. It is not necessary as long as you understand that an outflow is an expense and makes the project worth less.
If you have purchased land in the project , how would you include that in the cash flow ?
You can include as an initial cash outflow.
wonderful
Glad it helped.
hi, for the last line, why don t you just divide 1 cumulative cashflow wioth the other one, you arrive also at 15pc
There are many ways to get at the same thing. My stuff tends to be very mechanical, with the idea being it's easier to see what's going on and there is less chance that you make a mistake in a complex formula.
Hello Matt, my question is suppose lets assume , you have a cash flow of EBITDA of $2M for the next 15 years and the purchase price is $15M. I get an IRR of 13%. now how do I calculate the ROI. my EBITDA is not discounted. Can you please answer this,
So you can do it similiarly to the method demonstrated here except it sounds like you are starting with an annual net cash flow. You would have to discount each year by the appropriate factor. Without yearly expenses, it will look a lot more optimistic.
Do you look over cashflows? I need some assistance with one I'm doing . It's frustrating me atm
Do you mean doing a statement of cash flows in Excel?
Sir, In an Excel Sheet, for how many 'Number of entries' in Rows one can calculate IRR ?
I don't think there is an upper limit
@@MattMacarty Please try to enter in 41 rows.
Use xNPV formula so that you get the same answer
I suppose you can use XNPV, but that one is really for uneven cashflow periods. So maybe I get a cashflow in 6 mos and then another 9 mos later. So yes if you use actual dates and set the initial cash out flow as "today" then you can use XNPV.
How calculate the actual cash outflow if the IRR is given as 5%
You would need some numbers in addition to the IRR. Sometimes that's all you are given though.
How did you calculate "Helper cell for functions- Cash Flow"
HI. Those helper cells are cash inflow less cash outflow. You can download the spreadsheet by following the link in the video or the description section.
How you got D34:E34 values? I didn’t get it. Could you please explain
The values in row 34 are the un-discounted, net cashflows. So Cash inflow less the cash outflow, for example D13 - D23
@@MattMacarty thank you so much for your reply. 👍👍👍
If it says expects a rate of return of 19% is that that same as cost of capital ?
Yes for this demonstration expected return is cost of capital
Hi how did you do the break even anaylais?
HI. Actually I plan to publish a video that covers breakeven. I didn't explicitly cover it in this video because it was getting long. Essentially you look for the year where overall cashflow goes positive and calculate from that.
Can you give me a solution to this question
dropped parcel company is considering purchasing new equipment to replace existing equipment that has book value of zero and market value of 15000 new equioment costs 90000 and is expected to provide production savings and increased profits of 20000 per year for the next 10 year new equipment has expected useful life of 10 years after which its estimated salvage value would be 10000 straight line depreciation effective tax rate 34% cost of capital 12% machinary replacement problem should droppitt replace current equipment?
calculate NPV
profitabiity index
IRR
You can download the spreadsheet I used in this video and just plug in your numbers, or use it as the basis to build your own model. There is a link in the video description to download
Please
Why you divide by the total cost and not only by cost of initial capital to cslculate ROI
Hi. ROI is total benefits divided by total costs. For a multi-year project the costs and benefits are realized over time.
What is cost of capital and how it is calculated ?
Cost of capital is usually a blend of the cost of financing a project. So if it is funded entirely with equity, then you could use return on equity. If you blend debt and equity financing, you would weight them according to each contribution to get weighted average cost of capital (WACC). Sometimes an opportunity cost is also factored in to get a hurdle rate. The bottom line is it varies company to company and a higher cost of capital represents a more risky project.
So how do you figure NPV for 5 years on a continually running business with no initial investment???
If there is no cash outflow just set it a t 0 in the model.
Great, but:
1. Why ignore the cash flows after 5 years?
Perhaps after 20 years the present value of the net cash flow will be insignificant, and/or perhaps there are too many unpredictable variables over 20 years so we ignore the effects after some number of years. Is that right?
2. After 3 years, the cumulative cash inflow exceeds the cumulative cash outflow, so you have money you could invest somewhere, supposedly at 12% [interest] / ROI. Do the calculations in this video inherently include the return on that [extra invested money], or should there be another line showing that in year 4 the roughly $20,000 cumulative net gain earned $2400 and in year 5 that $22,400 + year 4's net gain of roughly $137,000 (total $159,400) earned roughly $19,000?
Thanks for your questions. When capital budgeting projects are undertaken, they are typically assigned a lifespan. If it's an IT project you can expect the lifespan will be shorter than say a power plant project. So in my example, the five-year horizon is mostly arbitrary for illustrative purposes. As far as reinvesting any excess cash flows, you can assume that the return on that investment would be the same regardless of the capital project selected. In other words, it doesn't change NPV, and in some respect, reinvestment is included since a higher NPV is better and means more money to reinvest therefore more return in the future.
Thanks. If these calculations were not just for illustrative purposes, would you use the 5-year lifespan or would you extend the lifespan until the present value of future cash flow becomes insignificant? I'm guessing the answer depends on predictability, and for I.T. the future cash flow is unpredictable after 5 years, so a 5-year lifespan makes sense even though the cash flow forecast suggests year 6 will still have a net gain of almost $100,000 in PV. Yes?
For a power plant, technological change could still affect the market, but future cash flows are more predictable and therefore the lifespan might be 20 years. Yes?
It would depend on the projected lifespan of the project. In this example, five years might make sense since it is an IT project which may be obsolete after five years. Keep in mind that you would be comparing several similar projects perhaps from different vendors and selecting the one with the highest NPV.
Possible to get the template ?
Yes: alphabench.com/data/excel-npv-irr-tutorial.html
how can saved or download this video freely
Available at: alphabench.com/data/excel-npv-irr-tutorial.html
Hey, how do i get cost of capital?
There are several ways to get cost of capital. A textbook example would ask you to calculate WACC which includes the required rate of return on equity and the cost of borrowing. Many times it is given or just estimated. Sometimes analysts adjust the cost of capital based on the riskiness of a project, so they might adjust it upward for projects considered more risky.
how can i get the Cost of capital?
It will have to be given our you can calculate it from cost of debt and required rate of return on equity.
The calculation of ROI seems to be wrong.Kindly share the source of your calculations of ROI and secondly ROI never considers time value of money .
Net benefits/Net investment(expenses). You can download the file here: alphabench.com/data/excel-npv-irr-tutorial.html
What does NPV mean?
Net Present Value
So can I get this right...the PV of Cash Outflow say for year 1 is $276000 from the $425k investment? And same philosophy with the inflow?
Somehow missed this. Only 10 months late... The cash outflow in each year can be thought of as independent of the initial investment. So one I commit to taking on the project, I am also committing to any future cash outflows associated with the project. Even though I will be generating cashflow, there are continuing costs associated.
How did you get 310k and 425k?
Theses are just assumptions made to set up the model. You can use any numbers you like.
npv= PVinflows - PV outflows, why u didn't do that???
Yes this is the way I did it. You can download the spreadsheet I used by following the link in the video
What if you have a perpetuity after year 5, how could I calculate the IRR?
You determine the value of the perpetuity by dividing the cashflow you will realize indefinitely by the cost of capital. Then just include this as another inflow argument for the IRR function.
For ROI, why do you use NPV as the numerator? That already includes the cost. Shouldn't the numerator only include the "return", i.e. NOPAT? Reference: corporatefinanceinstitute.com/resources/knowledge/finance/what-is-roic/
You can calculate ROI using different methods. At it's most basic it measures net inflows / the cost to generate those inflows which is what my model is doing. Mine is not an accounting model so I am not accounting for taxes or other common income statement items. I am really just trying to show how to get started with comparing capital budgeting projects in terms of economic benefits. Since taxes impact all projects equally, we can usually ignore them. If you have some taxes advantaged project you could just adjust your inflow upward.