Topic 6- Investment Analysis Flashcards
Project
a decision that requires any use of resources
Capital Expenditure
Up front cost to get started/buy assets
Types of Projects
expansion
new product
replacement
Which type of project is new ventures within the business?
new product
What type of project is the firm entering new areas or markets?
expansion
What type of project is the firm replacing existing assets with new ones?
replacement
An example of each type of project
Expansion: disney entering real estate
New product: coke making vanilla coke
Replacement: disney replacing old rides
The 2 categories of projects
mutually exclusive
independant
the 3 decision types
payback period
net present value
internal rate of return
payback period decision looks at __
how long it takes to pay back initial $$
which decision type is biased towards projects that return cash quickly/liquid?
payback period
Cons of payback period
doesn’t account for TVM, Cf beyond t
Formula for payback period
add up in cash flows during payback t and see if it equals or is greater to initial
Net present value is the ___
PV of the project including all outflows
For a NPV if independent what is decision rule?
if NPV> accept
