Module 8: Financial Decisions Model Part 1 Flashcards
1
Q
Profitability index formula
A
present value of net future cash inflows/present value of net initial investment
2
Q
Types of capital budgeting models:
A
Payback period model, discounted cash flow, internal rate of return, and net present value
3
Q
NPV formula
A
NPV = Inflows - Outflows
4
Q
Annual Operating Cash Flow (OCF)
A
Annual OCF = Pretax Cash Flow x (1-Tax rate) + (Depreciation x Tax rate)
5
Q
Rates used in present value analysis
A
Cost of capital, hurdle rate, discount rate, required rate of return
6
Q
Depreciation tax sheild
A
= depreciation expense x marginal tax rate
