E Section

Question 1

what is the formula/calculation that causes the NPV to equal to zero

Answer 1

IRR

Question 2

discounted payback method address one of the primarily shortfall of the payback method calculation

Answer 2

ignoring the time value of moey

Question 3

payback period formula

Answer 3

initial investment/cash inflow per period

Question 4

what is certainty equivalent approach

Answer 4

assessing project risk converts projected cash flows into risk-free cash flow.
- attempts to separate the timing of cash flows from their risk. The expected cash flow is converted into an amount that has a higher probability of actual materializing. These cash flows are then discounted at a risk-free rate such as the rate for a treasury bill.

Question 5

what is sensitivity analysis

Answer 5

is used to determine the effect of changes in inputs on the outputs.

Question 6

what is monte carlo simulation

Answer 6

which uses repeated random sampling and computational algorithms to calculate a range of most likely outcomes for a project.

Question 7

what is capital budget

Answer 7

is a long term budget of investments in property, plant and equipment and of the future cash inflows and outflows related to the investments.

Question 8

what is simulation approach

Answer 8

for evaluating the success of a project allows for the testing of a capital investments projects using hypothetical variables to approximate cash flow.

Question 9

disposal price of the old equipment

Answer 9

is a cash inflow that decreases the initial investment required for the replacement decision.
- is the most relevant to a manufacturing equipment replacement decision.

Question 10

what is NPV

Answer 10

is the PV of the project’s cash flow calculated at the appropriate discount rate, less the project’s initial investment.

Question 11

what is the formula for depreciation tax sheiled

Answer 11

(tax rate) (dep exp) ( PV annuity factor)