B3 - Financial Modeling and Analysis Flashcards
1
Q
How are after-tax annual cashflows calculated?
A
Net income + depreciation amount
2
Q
How is the payback period calculated?
A
Net initial investment / increase in annual net after-tax inflow
3
Q
How is the profitability index calculated?
A
PV of net future cash inflow / PV of net initial investment
4
Q
The profitability index is a variation of which capital budgeting model?
A
Net present value
5
Q
What is a time-adjusted rate of return from an investment also known as?
A
Internal rate of return
6
Q
How is the internal rate of return is computed?
A
Investment / cash flows = present value factor (higher PVF = lower IRR)
7
Q
T/F: Incremental costs represent the change in cost associated with different alternatives and are considered synonymous with relevant
A
True
