Chapter 12 Exam 3 Flashcards
(11 cards)
What is the payback method?
Initial investment / net cash flow.
What is the net cash flow equation?
Cash revenues - cash expenses
What is the net present value equation?
(present value of initial investment) + present value of cash inflows = net present value
What equations do you need to look at the factor table?
Net present value, internal rate of return and profitability index.
What is the internal rate of return equation?
Amount invested / annual cash inflows = factor. –> locate factor on P.V annuity table and corresponding percent is the rate of return
What is the profitability index equation
Net present value of cash inflows / initial investment required.
When do you use the present value of annuity table?
To find a factor for annual cash inflows
When do you use the present value of $1 table?
To find the factor for a one time cash inflow or outflow
Cash savings = ?
cash inflow
Salvage value = ?
Cash inflow
What is the simple rate of return equation?
Annual incremental net operating income / initial investment.
