BFIN 300 Final Review Latest Update Graded A+

BFIN 300 Final Review Latest Update Graded A+ Net Present Value (NPV) the sum of the present values of expected future cash flows from an investment, minus the cost of that investment. If NPV is negative you will reject the investment Payback Period Rule an investment is acceptable if its calculated payback period is less than some pre-specified number of years Discounted Payback Period the length of time required for an investment's discounted cash flows to equal its initial cost Average Accounting Return an investment's average net income divided by its average book value Internal Rate of Return (IRR) The discount rate that makes the NPV of an investment zero. (Value at end of term - Initial Investment)/ Initial Investment Profitability Index the present value of an investment's future cash flows divided by its initial cost You purchase a run-down home in Albany for $25,000 and spend another $25,000 to repair it. Your total in-cost is $50,000. When the work is done, you place the home back on the market and find that it's worth $60,000. What is your NPV? a) Zero b) $10,000 c) $25,000 d) $50,000 e) $60,000 $10,000 What is the difference between an investment's market value and cost? a) Internal Rate of Return (IRR) b) Net Present Value (NPV) c) Capital budgeting process d) Discounted Cash Flow (DCF) e) All of the above Net present value As a financial manager, what will you do with an investment if its Net Present Value (NPV) is negative? a) Estimate the cash flows of the business b) Reject the investment c) Accept the investment d) Be agnostic with the investment e) None of the above Reject the investment Which investment technique yields the same result as Net Present Value (NPV)? a) Payback Rule b) Discounted Payback Period c) Internal Rate of Return d) Average Accounting Return e) Profitability Index Internal rate of return (IRR) Which statement is true regarding the Internal Rate of Return (IRR)? a) It is the most important alternative to Net Present Value b) The IRR is a single rate of return which summarizes the merits of the project c) It is the discount rate which makes the Net Present Value of an investment equate to zero d) An investment is acceptable if its IRR exceeds the required return e) All of the above all of the above Discounted Cash Flow Analysis an investment valuation technique that considers anticipated changes in cash flows over years, projects the current value of net proceeds from the sale of the property in the future, and accounts for the time value of money. Relevant Cash Flow a change in the firm's overall future cash flow that comes about as a direct consequence of the decision to take that project Incremental Cash Flow the difference between the cash flows a company will produce both with and without the investment it is thinking