Week 13 - Workshop Questions Flashcards
1
Q
What is the ‘Equal Annual Benefit Model’?
A
The Equal Annual Benefit Model allows for easy comparison between the NPV of a shorter and longer project.
2
Q
How is the ‘Equal Annual Benefit’ calculated?
A
EAB = NPV x Cost of Capital/ 1-1/1.cost of capital (1.cost of capital is raised to the t)
3
Q
How is an ‘Annual Cost of Capital’ converted into a monthly ‘cost of capital’?
A
((1+Cost of Capital)’1/12) - 1 = Monthly Discount Rate
1/12 is raised
4
Q
How to calculate the NPV using monthly discount rate?
A
FCF/Monthly discount rate* (1- 1/(1.monthly discount rate)raised to t)
