Unit 6 Flashcards

1
Q

Discounted cash flow

A

A valuation method that estimates the value of an investment using its expected future cash flow

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2
Q

Present value

A

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

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3
Q

Net present value

A

Helps determine if an investment will make or lose money by accounting for the time value of money

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4
Q

Discount rates

A

The rate used to determine the present value of future cash flows

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5
Q

Interest rate

A

The rate in which money can be borrowed or lent over a period of time

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6
Q

Cost of capital

A

The expected return that investors could earn on their best alternative investment with similar risk and maturity

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7
Q

Internal rate of return

A

The rate at which the Present Value of the benefits exactly offsets the cost (equals to 0)
Present value = 0

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8
Q

Payback period

A

The amount of time it takes to recover the cost of an investment

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9
Q

Incrementality (characteristic of quality forecast)

A

All benefits, investment and expenses that will change as a result of the decision should be included in the financial forecast

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10
Q

Time frame (characteristic of quality forecast)

A

Most forecasts should provide a maximum of 5 years of cash inflows

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11
Q

Economics and pricing (characteristic of quality forecast)

A

Forecast should reflect current product prices and operating costs

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