FIN 401 Study Guide - Midterm Guide: Cash Flow, Dividend Policy, Root Mean Square
Document Summary
Capital budgeting (npv) the difference between the market value of a project and its cost. Payback period how long does it take to get initial cost back (put interest as. 0% in calc) [discount pb = use r] Mirr used for non-conventional cfs (irr can"t handle) Method 1: discount approach: all ve cfs are discounted back to present and added to initial cost. Method 2: reinvestment: all cf except the first are compounded (fv) at end of proj. "s life. For eac = find pmt once npv is solved and choose lower cost. Method 3: combo: all ve cfs are discounted back to present and all +ve cfs are compounded at end (d +k )[ 1+0 . 5 k. Npv: pv (ocf) + pv (ncs) + pv (nwc) + pvccats. Ocf: (s-c)(1-tc) (you will get pmt then input in calc to find pv) Ncs: - initial cost + pv (salvage) Nwc = -intial investment + pvrecap ( -x + x/(1+rn)
