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12 Cards in this Set
- Front
- Back
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Straight line depriciation method equation?
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Depriciable base - salvage value
______________________________ Useful Life |
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Straight line depriciation excel equation?
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SLN(cost,salvage,life)
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When doing capital budgeting, what 2 things do we disregard?
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-Sunk costs
-Financing costs: bc it is included in the discount rate used to evaluate the profitability of the project. |
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Payback period equation?
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Initial Outlay
_______________________________ Annuity Payment |
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What is capital budgeting?
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It compares the benefits and costs of projects
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You should accept the NPV when?
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It's positive
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Accept the IRR if?
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It exceeds the required rate of return for the project
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What are incremental cash flows?
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cash flows that are in addition to those the firm already has.
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We omit sunk costs. Why do we omit financing costs?
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They should already be included in the discount rate.
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Adjusting cash flows based on the change in WC
+Assets ==> ? -Assets ==> ? |
+Assets ==> -Cash Flow
-Assets ==> +Cash Flow |
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After Tax Cash Flow = ?
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(Revenue change + Savings - Expenses) * (1-tax rate) + (Change in depreciation * tax rate)
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Terminal Cash Flow = ?
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(Recovery of NWC - Shutdown Expenses) + Salvage - Salvage taxes
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