finance lec 3 - capital investment appraisal

Question 1

what do organisations generate revenue through

Answer 1

use of assets

Question 2

assets can be

Answer 2

human or equipment

Question 3

but assets depreciate so this means htey may not

Answer 3

function they same was as when 1st brought

Question 4

assets depreciating may lead to

Answer 4

detoriation in perforamnce/functionality

Question 5

since assets depreciate and you wanna operate as you did before what must you do

Answer 5

repair / buy new assest

Question 6

capital investmeent descisons related to

Answer 6

descision in investmetn and renewal of assets

Question 7

what is one of fthe most imp resources of a compapny

Answer 7

cash

Question 8

cash is x

reagardless of

Answer 8

limited

size of company

Question 9

capital investment process

Answer 9

generate ideas

search out relevant info

id possible alt

determining specific project details

Question 10

sddedding financial condequences related to

Answer 10

cost

cf

factors affecting cf

Question 11

assessing non financial consequence

what may not always be best decsison

what should you consider(3) things

Answer 11

biggest number not always best desicsion

consider cmopany reputation

consdier mission and direction of company

Question 12

when considering relevant cashflows what shoudl be on our checklist
5 things

Answer 12

sunk costs

apportioned fixed cost

opportunity cost

interest/interest charge is not a relevant cf

irrelevant cashflow

Question 13

when is a sunk cost irrelelant

Answer 13

if already been incurred

Question 14

when are apportioned fixed csots irrelevant

Answer 14

if remain fixed and still incurred whether project goes ahead or not

Question 15

when are apportioned fixed costs relevant

Answer 15

e.g semi fixed cost

increase factory usage - og rent = 1000 new rent = 1500

interested in 500 increase

rent increase but interested in the increase

Question 16

is opportunity cost relevant and must it be taken into account

Answer 16

YES

Question 17

give e.g of opp cot

Answer 17

either use building for own production facilities or rernt for 150000

oc - 15,000 - very relevant and must be taken into account

Question 18

interest is also teh

Answer 18

discount rate

Question 19

why is interest/interest charge not a relevant cf

Answer 19

raken into accouint through dicsspunt rate/cost of captial

Question 20

what is an irrelevant cahflow

Answer 20

depreciation charge - as not paying to anyone

Question 21

if NPV at any rate is negative what do we say about te IRR

Answer 21

it doesnt exist

Question 22

if give you a perpetuity/ investment appriasl question with rev vc and fc - how do we w/o

Answer 22

net annualk cf = rev - tc

Question 23

if got t work out NPV of a perpetuity cf how do you go about this

Answer 23

do the intiial cost and only one year

your differnce will give you NPV of your perpetuity