ADMS 3530 Study Guide - Final Guide: Net Present Value, Opportunity Cost, Capital Requirement

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Net present value: calculate pv & invest pv exceeds investment, npv = pv required investment, comment on risk & pv, compare risk similar risk % ror. Irr dcf ror: rate npv = 0, calculate (269, trial & error, npv positive irr greater & reduce npv. More examples mutually exclusive projects: 3 important problems. Increase npv greater than opportunity: choice- long/short lived (277, equivalent annual cost (278) If different lives calculate lowest eac: replacing old machine, eac. Identifying cf: discount cf (294, discount incremental cf, = cf with project cf without project. Include indirect costs: damage existing / damage npv benefit future, forget sunk cost. Calculating cf: total cf (300, capital investment. Increase/decrease working capital: operating cf, =revenue-cost-taxes, 3 ways deal with depreciation (302, = dollars in dollars out, adjust acct profits, tax shields, example problem (303) If salvage value (308: can depreciate ucc after asset sold.

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