Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
20 Cards in this Set
- Front
- Back
- 3rd side (hint)
|
Net Investment |
Cash Outflows (costs) - Cash Inflows (savings) -------------------- Net Investment ============ |
Net Investment |
|
|
Cash Outflows (Costs) |
Purchase Price Working Capital Requirement Market Value of existing idle asset |
Net Investment |
|
|
Cash Inflows (Savings) |
Proceeds from sale Tax effect on sale Avoidable cost of repairs, net of tax
Tax effect on sale: Gain/Loss × Tax Rate * gain - deduct * loss - add |
Net Investment |
|
|
Accounting Net Income |
Sales - Variable Costs CM - Fixed Costs Cash fixed costs Noncash fixed costs/depreciation Income before tax × 1 - tax rate ------------------- Accounting Net Income =========== |
Net Returns |
|
|
Net Cash Inflows |
Accounting Net Income + Depreciation/Noncash ---------------------- Net Cash Inflows ============= |
Net Returns |
|
|
Accounting Rate of Return |
Accounting Net Income ÷ Investment Investment: 1. Based on initial investment 2. Based on average investment Average investment: (Initial Investment + Salvage Value) ÷ 2 Average ARR: Ave Net Income ÷ Investment |
Nondiscounted Method in Evaluating Capital Investments |
|
|
Payback Period |
Net cost of initial investment ÷ Annual net cash inflows |
Nondiscounted Method in Evaluating Capital Investments |
|
|
Payback Bailout |
Considers salvage value as part of cash recoveries |
Nondiscounted Method in Evaluating Capital Investments |
|
|
Net Present Value |
PV of Cash Inflows - PV of Cash Outflows ----------------------- NPV =============
|
Discounted Method in Evaluating Capital Investments |
|
|
PV of Cash Inflows |
Cash Inflow × PVF where i = discount rate, desired rate of return, cost of capital
1. Net cash inflow from operations (savings) 2. Salvage value 3. Working capital to be released or recovered
*uniform: annuity*nonuniform: PV of 1 |
Discounted Method: NPV |
|
|
PV of Cash Outflows |
PV of Cash Outflows PV of Cost of Investment Cost of Investment
1. Cost of investment 2. Working capital required 3. Less proceeds from sale |
Discounted Method: NPV |
|
|
Internal Rate of Return |
Net Cost of Investment ÷ Annual Net Cash Inflows |
Discounted Method in Evaluating Capital Investments |
|
|
Exact IRR |
LR + [ (HR - LR) × PVFlr - PVFirr ] ----------------- PVFlr - PVFhr |
Disconted Method: IRR |
|
|
Profitability Index |
Total PV of Cash Inflows ÷ Total PV of Cash Outflows |
Discounted Method in Evaluating Capital Investments |
|
|
Cost of Debt |
Interest × ( 1- Tax Rate) |
Cost of Capital |
|
|
Cost of Preferred |
Dividend ÷ Net Issuance Price
Dividend: Par × dividend rate
Net Issuance Price: Market price - floatation cost |
Cost of Capital |
|
|
Cost of Common |
(Dividend @ end of year ÷ Net Issuance Price) + Growth Rate
Dividend @ end of year: (par × dividend rate) × 1 + growth rate |
Cost of Capital |
|
|
Cost of Retained Earnings |
(Dividend @ end of year ÷ Market Price) + Growth Rate |
Cost of Capital |
|
|
Capital Asset Pricing Model (CAPM) |
R = Rf + β(Rm - Rf) Risk Premium: β(Rm - Rf) Market Risk Premium: (Rm - Rf) Rf: risk free rate, government long term securities Rm: market rate |
Cost of Capital |
|
|
Yield to Maturity (YTM) |
(Interest + Discount Amortization - Premium Amortization) ÷ (Proceeds×60%) + (Maturity Value×40%) |
Cost of Capital |
