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Unit 8 (Videos) Flashcards

1
Q

NPV stands for …

A

Net Present Value

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2
Q

To calculate the payback, we …

A

add to the initial investment (the cash outflow) each cash inflow until we get a value equal to or greater than 0

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3
Q

If we our payback is in moment 8, and the total number of terms is 10, do we accept the investment project?

A

Yes

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4
Q

In discounted payback, we discount, one by one, the cash flows in each investment period to moment ______.

A

0

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5
Q

In the discounted payback method, we discount each cash flow to moment 0 by …

A

dividing the cash amount of that moment by (1+cost of capital, K%)^n

where n = the moment we’re in

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6
Q

The cost of capital, K, is calculated by …

A

finding the internal rate of return on the global cash flows of a project

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7
Q

The global cash flows of a project are the project’s ________.

A

financing

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8
Q

We calculate the discounted payback by adding the discounted cash flows until the sum is equal to or greater than 0.

A

True

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9
Q

The discounted payback is calculated the same way as the regular payback, but we …

A

use the discounted cash flows instead of the investment cash flows

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10
Q

In payback and discounted payback, we accept an investment if …

A

we recover the investment during the life of the project

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11
Q

We calculate the NPV by …

A

comparing all the cash flows of our initial investment evaluated at moment 0

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12
Q

We only use the discounted cash flows to calculate the discounted payback.

A

True

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13
Q

The function NPV is used to discount a group of cash flows.

A

True

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14
Q

The function NPV is used to …

A

discount a group of cash flows.

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15
Q

When calculating the NPV, we discount at a rate equal to …

A

the cost of capital, K

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16
Q

If the NPV is a positive value, we accept the investment.

A

True

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17
Q

If we calculate the IRR on the financing of a project, we get …

A

the cost of capital, K

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18
Q

If we calculate the IRR on the investments of a project, we get …

A

the internal rate of return on the project

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19
Q

Once we have the IRR, can we accept an investment?

A

No, because we need something to compare the IRR to, and that something is the cost of capital.

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20
Q

The difference between the IRR and the cost of capital gives us sufficient information to accept or reject a financing project.

A

True

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21
Q

If the IRR > K, we …

A

accept an investment project

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22
Q

The net return is …

A

the difference between the internal rate of return and the cost of capital

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23
Q

If the net return is greater than 0, we accept a financing project.

A

True

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24
Q

The reinvested cash flows are cash flows from our initial cash flows that we have reinvested.

25
We can reinvest by ...
compounding each of investment values to the end of the project in moment n at the reinvestment rate, rir
26
Once we compound an investment, we compare it with the initial investment by ...
discounting the total reinvested sum to moment 0
27
When reinvesting, if we have any negative cash flows, we ...
finance til the end at the cost of capital, K
28
The formula to calculate my reinvestments is the same whether or not I have negative cash flows.
True
29
reinvestment cash flow = investment*(1+rir%)^n-t, where t = our current moment and n our final moment rir% is used when there is positive cash flows and K% is used when there is negative cash flows.
True
30
$$*(1+rir%) is compounding
True
31
MNPV = initial investment in moment 0 + the sum of all the reinvested cash flows discounted to moment 0
True
32
We discount our reinvested sum to moment 0 by dividing it by ...
(1+cost of capital)^the end of the financing period, n
33
If the MNPV > 0, we ...
accept the investment project
34
MIRR is calculated by ...
introducing the formula MIRR in excel
35
The rate of financing is also called the ...
cost of capital
36
We can make a decision as to whether or not we will accept an investment if we only have the MIRR
FALSE We need something to compare the MIRR to, and that something is the cost of capital.
37
If MIRR - K > 0, we ...
accept the investment project
38
If the MIRR > K, we ...
accept a financing project
39
There is a real internal rate of return
FALSE
40
Net cash flows are ...
the difference between the investment cash flows and the financing cash flows
41
The cash flows of the investment are ...
those cash flows that are calculated as revenues - cost of investment
42
The modified internal rate of return supposes that ...
we have reinvested our cash flows
43
It is realistic to realize that we reinvest cash flows after ...
paying our financing investment
44
Net cash flows are those cash flows left over after paying back our financing.
True
45
The reinvested net cash flows are calculated on the net cash flows
True
46
We compound with the cost of capital for ________ cash flows, which means that we ...
negative cash flows | finance because we need money
47
We compound with the reinvested rate of return for the ...
positive cash flows
48
Reinvested cash flows are evaluated in moment ________.
n
49
We don't have a real internal rate of return because ...
we don't do anything in moment 0
50
Reinvested cash flows and reinvested net cash flows have the same formula.
True reinvested/net cash flows * (1+rir/K%)^n-t
51
The RNPV evaluates the real total cash flows in moment 12.
FALSE The RNPV evaluates the real net cash flow in moment 0
52
For the RNPV, we discount at the rate of ...
the cost of capital, K
53
If the RNPV is positive, we accept the investment project.
True
54
RNPV = total net cash flow in moment 0/(1+K%)^n
True
55
The IRR is the value that makes the NPV equal to 0.
True
56
NPV includes the initial amount invested.
True
57
Profitability index is the profit index for every euro spent
True
58
Payback period is the time it takes to recover your investment
True

FM (11 decks)

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