CH21 b - and inflows. That is, it is the rate which makes...

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ACCT 347 LECTURE NOTE,CHAPTER # 21 I. Capital Budgeting The making of long-term planning decisions for investments and their financing. II. DISCOUNTED CASH FLOW METHODS 1. Net Present Value (NPV) Method The PV of all ____ inflows is compared against the PV of all cash outflows that are associated with an investment project. The difference between the PV of these cash flows, called the NPV, determines whether or not the project is acceptable. 2. Internal Rate of Return (IRR) Method The interest yield promised by an investment project over its useful life. It can be computed by finding the discount rate which equates the PV of the cash outflows
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Unformatted text preview: and inflows. That is, it is the rate which makes the NPV ____. III. Sensitivity Analysis IV. Payback Method This method centers on a ____ of time known as the payback period, which is the length of time that it takes for an investment project to recoup its own initial cost out of the cash receipts that it generate. V. Accrual Accounting Rate of Return (ARR) Method The rate of return promised by an investment project when the time value of money is not considered; it is computed by dividing a project's annual net income by the initial or average investment required. VI. EVALUATING MANAGERS & GOAL-CONGRUANCE ISSUES...
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