Chapter 11 Review This includes formulas and other important notes for this chapter

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Accounting & Financial Management
AFM 102
Tony Atkinson

Chapter 11 Review FV = investment(PV) x (1+r)^n PV = FV x (1+r)^-n PV = annuity x annuity present value factor (from table) Present value of bond= PV(annuity) + PV(limp-sum) Payments paid annuity a = PV x capital recovery factor(table) The more the periods or the bigger the rate the less valuable the a fixed amount of cashed received in the future will be Income tax = profit - depreciation Net = depreciation + income tax – tax Payback method = investment / return ( increase in profits ) Discounted payback method = - Create a table showing each year - Year 0 is the investment - Each other year show the present value of the return and subtract it from amount left to recover from investment - Number of periods it takes to recover = the year that has amount left less than next year’s profit + ( amount left / next year’s profit present value ) Annual depreciation = (historical cost – salvage value) / asset life Accounting rate of return = Average income / average investment Net Present value -
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