Capital Investment Appraisal Flashcards
1
Q
Why NPV?
A
- Timing of cash flows
- Opportunity cost of finance
- Whole of relevant cashflows irrespective of when
- Objectives - output has direct bearing on wealth
2
Q
Why is it useful to know timing of cash flows?
A
so you can :
1) discount various cashflows associated with each project according to when they expect to rise
2) cash flows are non-simultaneous
3
Q
Opportunity cost of finance is also
A
Net benefit
4
Q
Why is NPV irresepctive of when?
A
Treated differently by date but all taken into account to influence decision
5
Q
NPV layout
A
column 1 : Cash flow
column 2: Discount Factor
column 3: Present value
6
Q
Present value =
A
Cash flow x Discount Factor
7
Q
How do you work out discount factor?
A
1/ 1 x (1+X%)^ year#
8
Q
Payback period =
A
Investment required / annual net cash inflow
