Chapter 11: Investment appraisal techniques Flashcards
1
Q
Payback period =
A
Initial payment/Annual cash flow
1
Q
ARR (initial) =
A
Average annual profit/Initial investment x100
2
Q
ARR (Average) =
A
Annual average profit/Average investment x100
where average investment =
1/2(Initial investment + Final/scrap value)
3
Q
If the NPV is positive, is this a good or bad investment?
A
Positive = financially viable
4
Q
If the NPV is negative, what does this mean?
A
Not financially viable
5
Q
If the NPV is zero, what does this mean?
A
Breakeven
6
Q
Is NPV a superior method to IRR?
A
Yes
7
Q
NPV is the present value of expected future net cash receipts less the cost of interest
True or false?
A
False
NPV is the present value of expected future net cash receipts less the cost of investment.
8
Q
IRR of a perpetuity =
A
Annual inflow/Initial investment x 100
9
Q
A
