ACCT1000 Chapter Notes - Chapter 3: Decision Rule, Interest Rate, Net Present Value
23 Jan 2019
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Document Summary
Investment decision are made by managers in all osrts of entities, large or small. Risk in finance is defined as measureable variation in outcomes. Uncertainty, on the other hand, is the unmeasurable variation in outcomes. Entities that are successful in the long term make investment decisions very carefully and follow established decision support procedures. Investments normally require the outlay of cash and, as noted above, cash is important to entities that want to survive. Formula is used when there"s annuity and table when there is not an annuity. The advantages of the pp measure are the it: Provides awareness of risk into the decision. The time value of money is ignored, as the pp method treats all cash inflows equally. Is also ignores all cash inflows after payback has occurred. Net present value (npv) is the difference between the present value fo cash inflows and the present value of cash outflows over a period of time.
