Unit 6 Flashcards
Discounted cash flow
A valuation method that estimates the value of an investment using its expected future cash flow
Present value
The concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim
Net present value
Helps determine if an investment will make or lose money by accounting for the time value of money
Discount rates
The rate used to determine the present value of future cash flows
Interest rate
The rate in which money can be borrowed or lent over a period of time
Cost of capital
The expected return that investors could earn on their best alternative investment with similar risk and maturity
Internal rate of return
The rate at which the Present Value of the benefits exactly offsets the cost (equals to 0)
Present value = 0
Payback period
The amount of time it takes to recover the cost of an investment
Incrementality (characteristic of quality forecast)
All benefits, investment and expenses that will change as a result of the decision should be included in the financial forecast
Time frame (characteristic of quality forecast)
Most forecasts should provide a maximum of 5 years of cash inflows
Economics and pricing (characteristic of quality forecast)
Forecast should reflect current product prices and operating costs