CAPITAL INVESTMENT DECISIONS
- Created by: josief95
- Created on: 13-12-15 15:00
Other questions in this quiz
2. Cash flow (numbers vertically down)
- Year 0 = total investment; then every year following = Total annual profit
- Every year = total investment;
- Year 0 = Year 0 = total investment; then every year following = investment - annual profit
3. Average annual profit =
- Total anual profit x life time until replacement (yrs) / life time until replacement (yrs)
- Total annual profit / Average annual investment x 100
- Total cost of unit x replacement number
- Net profit per unit x replacement number
- Investment cost + total disposal value / 2
4. Internal rate of return (IRR)
- The discount rate, which, when applied to the future project cash flows, produces a zero NPV
- If project NPV is positive, it should be accepted; if it is negative it should be rejected
- If competing projects have positive NPVs, the one with the highest NPV is selected
5. Payback period (PP) graph - Headings along horizontal axis
- Year; Cash flow; Cumulative cash flow
- Years: 0, 1, 2, 3, 4,
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