week 10 Flashcards
1
Q
investment appraisal
A
inflation
capital rationing
sensitivity analysis
2
Q
money rate equation
A
= (1 +real rate) x (1 + inflation rate) = 1 + money rate
3
Q
capital rationing
A
business may be unable or unwilling to undertake wealth enhancing investment opportunities because it cannot or doesn’t wish to raise finance to the level required
4
Q
types of capital rationing
A
hard capital rationing- when business cannot raise finance
soft capital rationing- when the constraint is self imposed
5
Q
profitability index
A
= NPV of future cash flows/ initial capital invested
6
Q
sensitivity analysis
A
assessing the risk of an investment project by evaluating how responsive the NPV of the project is to changes in the variables from which is calculated
