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FM > Unit 8 (Videos) > Flashcards

Unit 8 (Videos) Flashcards

1
Q

NPV stands for …

A

Net Present Value

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2
Q

To calculate the payback, we …

A

add to the initial investment (the cash outflow) each cash inflow until we get a value equal to or greater than 0

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3
Q

If we our payback is in moment 8, and the total number of terms is 10, do we accept the investment project?

A

Yes

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4
Q

In discounted payback, we discount, one by one, the cash flows in each investment period to moment ______.

A

0

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5
Q

In the discounted payback method, we discount each cash flow to moment 0 by …

A

dividing the cash amount of that moment by (1+cost of capital, K%)^n

where n = the moment we’re in

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6
Q

The cost of capital, K, is calculated by …

A

finding the internal rate of return on the global cash flows of a project

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7
Q

The global cash flows of a project are the project’s ________.

A

financing

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8
Q

We calculate the discounted payback by adding the discounted cash flows until the sum is equal to or greater than 0.

A

True

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9
Q

The discounted payback is calculated the same way as the regular payback, but we …

A

use the discounted cash flows instead of the investment cash flows

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10
Q

In payback and discounted payback, we accept an investment if …

A

we recover the investment during the life of the project

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11
Q

We calculate the NPV by …

A

comparing all the cash flows of our initial investment evaluated at moment 0

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12
Q

We only use the discounted cash flows to calculate the discounted payback.

A

True

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13
Q

The function NPV is used to discount a group of cash flows.

A

True

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14
Q

The function NPV is used to …

A

discount a group of cash flows.

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15
Q

When calculating the NPV, we discount at a rate equal to …

A

the cost of capital, K

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16
Q

If the NPV is a positive value, we accept the investment.

A

True

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17
Q

If we calculate the IRR on the financing of a project, we get …

A

the cost of capital, K

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18
Q

If we calculate the IRR on the investments of a project, we get …

A

the internal rate of return on the project

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19
Q

Once we have the IRR, can we accept an investment?

A

No, because we need something to compare the IRR to, and that something is the cost of capital.

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20
Q

The difference between the IRR and the cost of capital gives us sufficient information to accept or reject a financing project.

A

True

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21
Q

If the IRR > K, we …

A

accept an investment project

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22
Q

The net return is …

A

the difference between the internal rate of return and the cost of capital

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23
Q

If the net return is greater than 0, we accept a financing project.

A

True

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24
Q

The reinvested cash flows are cash flows from our initial cash flows that we have reinvested.

25
Q

We can reinvest by …

A

compounding each of investment values to the end of the project in moment n at the reinvestment rate, rir

26
Q

Once we compound an investment, we compare it with the initial investment by …

A

discounting the total reinvested sum to moment 0

27
Q

When reinvesting, if we have any negative cash flows, we …

A

finance til the end at the cost of capital, K

28
Q

The formula to calculate my reinvestments is the same whether or not I have negative cash flows.

29
Q

reinvestment cash flow = investment*(1+rir%)^n-t, where t = our current moment and n our final moment

rir% is used when there is positive cash flows and K% is used when there is negative cash flows.

30
Q

$$*(1+rir%) is compounding

31
Q

MNPV = initial investment in moment 0 + the sum of all the reinvested cash flows discounted to moment 0

32
Q

We discount our reinvested sum to moment 0 by dividing it by …

A

(1+cost of capital)^the end of the financing period, n

33
Q

If the MNPV > 0, we …

A

accept the investment project

34
Q

MIRR is calculated by …

A

introducing the formula MIRR in excel

35
Q

The rate of financing is also called the …

A

cost of capital

36
Q

We can make a decision as to whether or not we will accept an investment if we only have the MIRR

A

FALSE

We need something to compare the MIRR to, and that something is the cost of capital.

37
Q

If MIRR - K > 0, we …

A

accept the investment project

38
Q

If the MIRR > K, we …

A

accept a financing project

39
Q

There is a real internal rate of return

40
Q

Net cash flows are …

A

the difference between the investment cash flows and the financing cash flows

41
Q

The cash flows of the investment are …

A

those cash flows that are calculated as revenues - cost of investment

42
Q

The modified internal rate of return supposes that …

A

we have reinvested our cash flows

43
Q

It is realistic to realize that we reinvest cash flows after …

A

paying our financing investment

44
Q

Net cash flows are those cash flows left over after paying back our financing.

45
Q

The reinvested net cash flows are calculated on the net cash flows

46
Q

We compound with the cost of capital for ________ cash flows, which means that we …

A

negative cash flows

finance because we need money

47
Q

We compound with the reinvested rate of return for the …

A

positive cash flows

48
Q

Reinvested cash flows are evaluated in moment ________.

49
Q

We don’t have a real internal rate of return because …

A

we don’t do anything in moment 0

50
Q

Reinvested cash flows and reinvested net cash flows have the same formula.

A

True

reinvested/net cash flows * (1+rir/K%)^n-t

51
Q

The RNPV evaluates the real total cash flows in moment 12.

A

FALSE

The RNPV evaluates the real net cash flow in moment 0

52
Q

For the RNPV, we discount at the rate of …

A

the cost of capital, K

53
Q

If the RNPV is positive, we accept the investment project.

54
Q

RNPV = total net cash flow in moment 0/(1+K%)^n

55
Q

The IRR is the value that makes the NPV equal to 0.

56
Q

NPV includes the initial amount invested.

57
Q

Profitability index is the profit index for every euro spent

58
Q

Payback period is the time it takes to recover your investment

FM (11 decks)

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