cram

Question 1

What is payback period in terms of Investment appraisal

Answer 1

Time it takes for a project to repay its initial investment

Question 2

How do you work out pay back period ?

Answer 2

Create a cumulative table of how much is owed each year vs the net return. when the diagram show the payback has been achieve between two years, use the formula to work out how many months.

Question 3

What is the investment appraisal formula for payback?

Answer 3

Year + Amount needed/Amount give that year ie net return = Decimal figure.

Question 4

What do you do with the decimal figure in the payback investment appraisal.

Answer 4

Multiply by 12 , which shows the months

Question 5

What is Net Present Value in term of Investment Appraisal?

Answer 5

NPV calculates the monetary value of a projects future cash flow.

Question 6

How do you work Net Present Value?

Answer 6

Multiply the cash flows by the discount factor, add all the values together which equals the present value, to get the net subtract the initial investment .

Question 7

What is the order of Financial statements ?

Answer 7

1. Income statement aka Profit and Loss account
2. Statement of Retained Earnings/Owners equity
3. Balance sheet aka SOFP
4. Statement of Cash Flows

Question 8

What is Cost Volume Profit closely linked with?

Answer 8

Break even

Question 9

What is the formula for Break-Even ?

Answer 9

Fixed Cost/ Contribution per Unit = Breakeven point I units

Question 10

How do you work our Contribution per unit ?

Answer 10

Price - VC = per unit

Question 11

What about Break even point in terms of sales? what is the formula now?

Answer 11

Fixed cost/contribution margin ratio

Question 12

How do you work out contribution margin ratio?

Answer 12

It is the contribution margin dividend by price.

Question 13

What is meant by Target Profit

Answer 13

The goal net income a business wants to meet

Question 14

what is the Target NI formula in units?

Answer 14

FC + NI / Contribution per unit

Question 15

What is the Target NI formula in sales?

Answer 15

FC+ NI / Contribution margin ratio

Question 16

State 4 Limitations of Breakeven analysis ?

Answer 16

1. External factors are not considered , ie change in legislation or competition
2. Output is not the same as sales ie all stock may not be sold or may be sold at discounted price
3. Often too simple- most businesses offer a range of products
4. Variable costs do not always stay the same. For example, as output rises, the business may benefit from being able to buy inputs at lower prices (buying power), which would reduce variable cost per unit

Question 17

What is the ARR formula?

Answer 17

average annual return /investment * 100 = %