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FM > Chapter 8 - Specific investment decisions > Flashcards

Chapter 8 - Specific investment decisions Flashcards

1
Q

What is the formula for EAC (equivalent annual cost)?

A

NPV of costs / annuity

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2
Q

What is EAC used for?

A

Establishing the optimal asset replacement cycle

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3
Q

What is the difference between hard rationing and soft rationing?

A
  • Hard rationing is external, imposed by capital markets

- Soft rationing is internal, imposed by a management decision

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4
Q

How can divisible projects be ranked?

A

Profitability index

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5
Q

What is the formula for the profitability index?

A

NPV / initial outlay

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FM (15 decks)

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