formula 4

Question 1

cash payback method

Answer 1

cost of capital investment / net annual cash flow

net annual cash flows is inflows - out flows

Question 2

What is the best for cash payback method

Answer 2

the shorter the payback period the better

Question 3

Net present value method

Answer 3

1. consistent cash flows use ordinary annuity
   or 2. non consistent PV (Add up all )
2. subtract capital investment

Question 4

Profitablility index

Answer 4

pv of net cash flows / intiital investment

Question 5

profitability index is used for

Answer 5

to determine which projet is better

the higher the better

Question 6

Internal rate of return

Answer 6

capital investment / annual cash in flows

b. locate on the cahrt under the # of periods to find the best rate ot use
= required rate of return

if the rate is = to or higher accept

Question 7

Annual rate of return

Answer 7

1. calcaulte nanual average investment

orgianal investment + salvage value / 2

2. expected net income / annual avg investment = annual rate of return

greater than managements roi accept
higher the better