Flashcards in Financial Decision models Deck (22):

1

## Cash flow Effects

###
Direct

Indirect

Net effect

2

## Stages of cash flows

###
Inception of the project

Operations

Disposal of the project

3

## Methods that consider the time value of money are

###
DCF (discounted cash flow)

NPV (net present value)

Internal rate of return

4

## A discount or hurdle rate is determined in advance for which capital budgeting technique?

### Net present value

5

## What is an acceptable procedure to evaluate cash flows with risk?

### Discount rates may be used that reflects the degree of risk

6

## NPV focuses on what?

### Cash flow

7

## Advantage of using NPV over internal rate of return model in discounted cash flow analysis

### NPV can be used when there is no constant rate of return required

8

## Profitability index is used when?

### The capital rationing needs to be considered when comparing projects

9

##
Profitability index equation?

ONE limitation is?

###
present value of net future cash inflow / present value of net initial investment

It requires detailed long term forecasts of the projects cash flows.

10

## NPV uses what rate to discount cash flow

### hurdle rate (discount percentage rate)

11

## NPV of a project is a function of

### current and future cash flows, including proceeds from sale of old asset

12

## capital budgeting is based on

### managements predictions of an uncertain future

13

## Capital financing relates to

### longer periods of time that are subject to greater levels of uncertainty

14

## ONE limitation of payback period, discounted cash flow, internal rate of return, and NPV

### They rely on the forecasting of future data

15

## Capital budgeting decisions do not include

### Financing short-term working capital needs (more operational in nature)

16

## in capital budgeting decisions, MARCS and straight line depreciation will

### equal in total

17

## Relevant cost are those cost that will

### differ among many alternatives

18

## NPV method recognizes the

### time value of money and discounts cash flow over the life of the project using the hurdle rate

19

## List the rates used in NPV

###
Cost of capital

Hurdle rate

Discount rate

Required rate of return

20

## NPV method of capital budgeting assumes that

### cash flows are reinvested at the discount rate

21

## One disadvantage of NPV is

### It does not provide that true rate of return on investment

22