Capital Budgeting Flashcards
1
Q
Profitability Index
A
PV of net Future Cash Inflows/ PV of net initial investment
2
Q
Net Present Value
A
PV of Initial cash outflows of the investment - pv of cash inflows from project
3
Q
factor of the IRR
A
net incremental investment/ net annual cash flows
4
Q
investment (ant paid for new machine)
A
cash flows x payback period
5
Q
annual savings needed to make an investment realize % yield
A
pv cash savings/inflows = pv net cash outflows
6
Q
operating leverage
A
the degree to which a firm uses fixed operating costs, as opposed to variable operating costs
7
Q
financial leverage
A
the degree to which a firm uses debt to finance the firm
8
Q
combined leverage
A
the use of both fixed operating costs and fixed financing costs to magnify returns to the firm’s owners
