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3 cards from this section. Quick, good the night before a test.
Define Net Present Value (NPV).
Think about how future cash flows are valued against initial investments.
What does a positive NPV indicate?
Remember the acceptance rule based on cash flow values.
What does a net present value greater than zero signify?
Remember the basic acceptance rule for investments based on cash flows.
True or False: The Profitability Index can be used to prioritize projects when funds are limited.
Think about how you evaluate which projects to invest in first.
An investment project requires an initial outlay of $250,000 and expects to generate cash inflows of $80,000 at the end of each year for 4 years. Calculate the NPV using a discount rate of 12%. Thrive and discuss if the investment is beneficial.
Break it down year by year to simplify.
If a project has an unconventional cash flow pattern—say, it generates $50,000 in the first year, loses $20,000 in the second, and earns $60,000 in the third. Discuss how you would determine the IRR and the challenges faced.
Focus on the pattern and implications on calculation methodologies.
5 more questions in this section. Enroll free to practise them all.
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