PV from years 1 7 1 Calculate payback period The payback period is the time it

Pv from years 1 7 1 calculate payback period the

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PV from years 1-7) 1 Calculate payback period. The payback period is the time it takes in years for a investment to return back to the original amount invested in capital Projects with even cash flows payback period is calculated by Projects with uneven cash flows are calculated by adding up all the annual cash flows until the cumulative total cash flows equal net investment 1 Understand the differences between cash budgeting and capital budgeting. Capital Budgeting is the process of evaluating a organizations investment in the long run w/capital budgeting we look more into the future, usually 5-10 years Cash Budgeting is the estimation of cash inflows and outflows for a business or individual for a specific time period and are used to see whether the entity has enough cash to fulfill their operations and obligations 2 Identify cash inflows and outflows.
Statement of cash flows presents the inflows and outflows of cash in the different activities of the business the net increases or net decrease in cash and the resulting cash balance at the end of the period Cash inflows are referred to as receipts of cash while cash outflows to payments or disbursements 3 Calculate net present value. The net present value approach (NPV) requires that you calculate the present value of each cash flow then you add or 'net' those present values to arrive at projects next capital value Steps: Identify and get the amount of each cash flows Determine the appropriate discount rate The appropriate discount rate will change from company to company The discount rate is the average of the company's interest rate on borrowed funds Two other factors that affect discount rate are (1) the finance theory states that risks and rate of return are positively related meaning that if risks # then the rate of return will # as well (2) a discount rate should increase if inflation is expected to happen over the life of the project Calculate the present value of each cash flow You need to multiply the present value and multiply the right value factor Calculate the net present value Once you've the calculated the present value then you add them together to get a net value of the project. 2 Understand return on investment and return of investment Return Of Investment: means recouping the original investment -- getting your money back Return on Investment: means that you'll get over and above what you put into the investment. (i.e You spend 60$ on a investment and you yet back 80$ you've earned a 20$ return on investment) Chapter 10 1 Calculate division and company return on investment. Return on Investment measures a rate of return generated by a investment on assets ROI = operating income ( or segment margin) / average operating assets ASC280 'segment margin' provides generally accepted accounting principle that require companies to escort selected information about operating segments Return on Investment is still widely used today to evaluate a large range of

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