Week 13 Capita Budgeting formulas

Question 1

Net present value (NPV) equation

Answer 1

Net present value =
present value of cash inflows - present value of cash outflows

Question 2

Internal rate of return factor equation

Answer 2

Internal rate of return factor =
initial investment / annual cash inflows

Question 3

Payback period equation

Answer 3

Payback period =
initial investment / net annual cash inflow
*same formula used to calculate the IRR factor

Question 4

Accounting rate of return equation

Answer 4

Accounting rate of return =
annual net cash inflows - annual depreciation on new machine /
initial investment - proceeds from sale of old machine

Question 5

after tax cash flow equation

Answer 5

after tax cash flow =
amount of cash flow * tax effect

Question 6

tax savings from depreciation equation

Answer 6

tax savings from depreciation =
tax rate * depreciation

Question 7

income tax depreciation equation

Answer 7

income tax depreciation =
initial investment / life