Important ch 8 L7 Flashcards
1
Q
NPV
A
The difference between the PV of benefits and the PV of costs of a project or investment
2
Q
NPV decision rule
A
when making an investment decision, take the alternative with the highest NPV since it is equivalent to receiving its NPV in cash today
3
Q
The payback rule
A
the payback investment rule states that you should only accept a project if it’s cash flows pay back its initial investment within a prespecified period. An investment that pays back fast is a good investment
Usually a firm will have a set payback period of a few years depending on the type of projects
4
Q
IRR investment rule
A
Take any investment whos IRR exceeds the opportunity cost of capital and turn down those that are less
5
Q
A
