Accounting Exam 3 Flashcards
Internal rate of return
Investment required/Annual Cash inflow
Then find answer on grid to find closest %
Simple rate of return
Annual incremental NOI/Initial investment
Why would a company want the owner to invest in a project?
Positive NPV and internal rate of return > discount rate
Why would the owner reject the project?
Simple rate of return is lower than historical rate of return
Straight line depreciation
(Cost of equipment - salvage value)/useful life
Annual net cash inflow
NOI + depreciation
Payback period
Investment required / annual net cash inflow [NOI+depreciation]
Annual net cost savings
Sum of cost reductions/savings from investment - total annual costs
Dollar value for intangible benefits
Negative net present value to be offset ÷ Present value factor
Profitability Index
Present value of cash inflows ÷ Investment required by the project
Does depreciation expense affect cash flows?
No
