Finance Topic 1 Flashcards

1
Q

Accounting rate of return formulae

A
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2
Q

Discounting formulae

A
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3
Q

NPV

A

Discounted cash flow method, discount all relevant cash flows to present value

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4
Q

Profitability index

A

NPV per £ of initial capital outlay

Calculated - NPV divided by initial investment

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5
Q

Internal rate of return

A

IRR
Yield earned on an inv over course of its economic life
Discount rate that causes NPV to be zero

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6
Q

IRR formulae

A

Rule:
R1> 0
R2-r1 , or equal to 10%

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7
Q

Annuity

A

Same cash flow every period
Finite number

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8
Q

Perpetuities

A

Same cash flow each period
Forever

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9
Q

Single future cash flow

A
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10
Q

Formulae linking nominal and real inflation rates

A
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11
Q

Conversion of inflation nominal vs real

A
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