Lecture 8 Flashcards
(5 cards)
1
Q
What is formula for present value?
A
Future value / ( 1 + r) x n
R = interest rates
N = number of years
2
Q
What is annuity?
A
- series of equal payment made each year
- e.g getting 1000 ever year for 5 years straight
3
Q
What is payback period?
E.g invest 100,000 and the project gives you back 20,000.
A
You just divide it
100,000/20,000 to workout the years you will be payed back.
4
Q
What is accounting rate of return ( ARR) ?
A
Average annual accounting profit / initial investment x 1000
5
Q
What is internal rate of return?
And disadvantages? 2 of them
A
It’s discount rate that makes Npv = 0
2 disadvantages
1. Can be confusing
2. Assumes you Reinvest
