Taxes, interest, time correct answers generally work together to determine the value of the opportunities available to us.
Capital Budgeting correct answers a process used to justify the acquisition of capital assets or the investment in projects that support the expansion of business operations...
FINC 3620 Final Exam || Already Graded A+.
Taxes, interest, time correct answers generally work together to determine the value of the
opportunities available to us.
Capital Budgeting correct answers a process used to justify the acquisition of capital assets or the
investment in projects that support the expansion of business operations.
Capital Assets correct answers Equipment, buildings, land, supposed to last longer than a year
TVM correct answers The loss of purchasing power that occurs as a result of the interest
considerations associated with the passage of time
A dollar in your possession today is worth more than a dollar you'll receive in the future because
a dollar in your possession today can be invested and turned into more than a dollar.
Payback correct answers How long will it take you to recoup the amount of the original
investment?--> capital budgeting method that calculates the number of years it will take a
business to get back the money it invests in a proposed project or asset purchase.
Does not take into account time value of money and ignores cash flows beyond the payback
period. (It favors investments with a quick return over those with the largest overall return)
Is only appropriate for a project that will require a very fast payback period (1-2 years)
Gives NO clear answer on which is better
NPV correct answers a capital budgeting method that considers the time value of money by
discounting the future cash flows associated with a proposed project or asset purchase back to
the present.
expressed as a dollar amount.
A NPV of $0 means you expect the return will exactly match what you desire.
A positive NPV means you expect it to perform higher.
Lowest Total Cost correct answers a capital budgeting method similar to the NPV method
commonly used by business owners who must replace fixed assets on a regular basis.
This would be used when replacing a capital asset is not an option, but must be done.
It is a variation of the NPV method.
LTC often involves a financing decision, should you buy or rent?
emphasizes minimizing total cost because the benefit stream (other than the salvage value, if
there is any) doesn't change with the fixed asset chosen.
Utilizes time value of money concepts to discount future costs and benefits back to the
present.There is no chance of a positive NPV when using LTC. The goal is to determine the least
expensive purchase option, which is the option with the smallest negative NPV.
When to use capital budgeting correct answers changes in government regulations
• the need or desire to pursue a change in business strategy
• the need or desire to develop or introduce new products or services
Also involves determining if the benefits of pursuing an opportunity exceed the costs of doing so
or
, • determining the lowest-cost avenue of accomplishing some needed task
Costs of capital budgeting correct answers 1.Start-up costs
2.Operational costs
3.Working capital costs
4.Tax costs
EAATB (expected annual after tax benefit) correct answers The net effect of all of the costs and
benefits associated with a proposed investment
IRR correct answers The actual rate of return of an investment. Its calculation considers the time
value of money.
interest rate that matches the present value of the cost of our investment directly to the present
value of the future benefits to be received.
is the interest rate that, when used as the discount rate to determine the NPV of a proposed
investment, results in an NPV of zero.
C Corporation correct answers Entities that aren't a ______________ or an entity taxed as a
_________________ do not, themselves, pay income taxes.
The owners of such entities report their share of the business's net income on their individual
income tax returns, where the income is taxed.
Simple Interest correct answers the amount of interest earned or charged on a stated principal
amount when there's no compounding of interest
I=PRT, where I= interest, p=principal, r=rate, T=time
Maturity Amount correct answers the total amount due related to a loan or investment; equal to
the principal borrowed or invested, plus interest
M=P+I
Compound Interest correct answers earning or charging interest on both a stated principal
amount and the interest that has been previously earned or charged
Simple interest formula can be used to calculate this
Future Value correct answers the value at some future point in time of an amount loaned,
borrowed, saved, or invested today.
Present Value correct answers the value in today's dollars of some amount to be received or paid
in the future.
PV of a stream of unequal payments correct answers In certain instances, we may want to
determine the present value of a contract or other stream of potential payments. Often, the
amount of the individual payments will vary from one period to the next.
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