Finance Topic 1

Question 1

Accounting rate of return formulae

Answer 1

Question 2

Discounting formulae

Answer 2

Question 3

NPV

Answer 3

Discounted cash flow method, discount all relevant cash flows to present value

Question 4

Profitability index

Answer 4

NPV per £ of initial capital outlay

Calculated - NPV divided by initial investment

Question 5

Internal rate of return

Answer 5

IRR
Yield earned on an inv over course of its economic life
Discount rate that causes NPV to be zero

Question 6

IRR formulae

Answer 6

Rule:
R1> 0
R2-r1 , or equal to 10%

Question 7

Annuity

Answer 7

Same cash flow every period
Finite number

Question 8

Perpetuities

Answer 8

Same cash flow each period
Forever

Question 9

Single future cash flow

Answer 9

Question 10

Formulae linking nominal and real inflation rates

Answer 10

Question 11

Conversion of inflation nominal vs real

Answer 11