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CHAPTER_9_FORMULAE - Average amount invested in asset =...

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CHAPTER 9 FORMULAE Payback Period Payback Period = amount invested / average annual net inflow NOTE: Final year = Amount needed to complete recovery / Total net cash inflow in final year Accounting Rate of Return ARR = Average annual operating income from asset / average amount invested in asset Where Average annual operating income: Total net cash inflows over useful life - Total depreciation (i.e., cost – residual value) Total annual operating income ÷ Useful life Average annual operating income
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Unformatted text preview: Average amount invested in asset = book value of asset halfway through its useful life Book value halfway through useful life: Asset with no residual value = ½ of asset cost Asset with residual value = (cost + residual) / 2 Net Present Value NPV = PV of net cash inflows – PV of investment Profitability index = PV of net cash inflows / PV of investment IRR Interest rate at which PV of net cash inflows = PV of investment...
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