INVESTMENT APPRAISAL METHODS Flashcards
1
Q
What does Cash Flow analysis consider?
A
All of the inflows and outflows of cash resulting from an investment decision. Non-cash flows are irrelevant
2
Q
What are the methods of Discounted cash flow analysis
A
NPV, IRR, PI
3
Q
What does an expected NPV of $778,43 really mean?
A
From the shareholders’ point of view, it means that the firm could borrow 40 778,43 (the cost plus the NPV) to purchase the machine and pay out a dividend today and still have sufficient funds from the project to pay off the interest at 5%
4
Q
What is IRR?
A
the interest rate received
for an investment consisting of payments (negative values) and income (positive values) that occur at
regular periods.
