BADM*2030 Chapter Notes - Chapter 12: Net Present Value, Cash Flow, Payback Period
Document Summary
The net cash flow is positive, and therefore the investment should be made. For this example, initial investment is ,320 and net annual cash flow is. Factor of the internal rate of return = investment required / net annual cash flow. In the annuity table, the interest rate that corresponds with 10 years and 5. 216 is 14%. Since 14% is greater than the 10% required, the investment should be made. Payback period = investment required / net annual cash flow. = (initial investment + wc salvage of old) / annual cash flow. Since the payback period is less than the 6 years standard, the investment should be made. Accrual accounting rate of return or simple rate of return. Aarr = increase in net operating income / initial investment. Depreciation = (cost of equipment salvage value) / life of equipment. Increase in net operating income = increase in cash flow depreciation.
