The formula for present value of a future cash flow is OPV FV (1 + D^N O PV=FV+ (1 + 1)^N O PV [FV/ (1 + I)]^N O PV - FV x (1 + 1)^N PV FV / (1 + 1)^N
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![The formula for present value of a future cash flow is
OPV FV (1 + D^N
O PV=FV+ (1 + 1)^N
O PV [FV/ (1 + I)]^N
O PV - FV x (1 + 1)^N
PV FV / (1 + 1)^N](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F869e20a4-04bf-4f93-b571-d2e0ad3cb5fa%2F8bc0840a-baa5-4276-a32b-6beee0ac25c2%2F22ed0va_processed.jpeg&w=3840&q=75)
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- The Profitability Index (PI) is a financial metric that depends only on the Present Value (PV) of expected future cash inflows. This statement is: a False. b Only partly true. c True d Only partly false.Payback method is Select one: a. None of the options b. Yield on investment c. PV of cash inflow- PV of cash outflow d. Average Profit / Average Investment e. Investment / Annual cash InflowThe cash flows for two alternatives X and Y are shown in the table displayed here. Year: 0 1 2 3 4 5 Alternative X: -$3,000 900 900 900 900 1,300 Alternative Y: -$5,000 1,400 1,400 1,400 1,400 2,100 Write an equation using appropriate compound-interest factors that could be used to solve for the incremental rate of return (ΔIRR) associated with these two alternatives. Do NOT solve this equation for ΔIRR.
- Choose the correct option- "This is the rate at which present value of cash inflows are equal to the present value of cash outflows". a. NPV b. IRR c. Payback periodWhich of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the Initial Investment? A. internal rate of return (IRR) method B. net present value (N PV) C. discounted cash flow model D. future value methodThis calculation determines profitability or growth potential of an investment, expressed as a percentage, at the point where NPV equals zero A. internal race of return (IRR) method B. net present value (NPV) C. discounted cash flow model D. future value method
- Which of the following is the correct definition for present value (PV)? Select one: a. The current value of the sum of all the past cash flows given a specified rate of return. b. The current value of the sum of all the future profits made by the company with a specified rate of return. c. The current value of a future sum of money or stream of cash flows given a specified rate of return. d. The future value of the sum of all the future cash flows without a specified rate of return.For one lump sum FV, the PV of your future liquidity decreases a. as FV increases.b. as t decreases. c. as r increases. d. as r decreases. e. unpredictably.The NPV of a project involving an initial investment of x0 at time zero and a constantstream of cash flows x > 0 in all subsequent periods, 1, 2, ...,∞, is x/r − x0. Doyou remember how to derive this result from first principles? What if the project isexpected to be discontinued after T > 1 periods?
- A project's internal rate of return (IRR) is the that forces the PV of its inflows to equal its cost. The IRR is an estimate of the project's rate of return, and it is comparable to the on a bond. The equation for calculating the IRR is: CFt is the expected cash flow in Period t and cash outflows are treated as negative cash flows. There must be a change in cash flow signs to calculate the IRR. The IRR equation is simply the NPV equation solved for the particular discount rate that causes NPV to equal . The IRR calculation assumes that cash flows are reinvested at the . If the IRR is than the project's risk-adjusted cost of capital, then the project should be accepted; however, if the IRR is less than the project's risk-adjusted cost of capital, then the project should be . Because of the IRR reinvestment rate assumption, when projects are evaluated the IRR approach can lead to conflicting results from the NPV method. Two basic conditions can lead to conflicts between NPV and…What is the NPV of the following cash flows if the required rate of return is 0.09? Year 0 1 2 3 4 CF -6,816 3,577 3,505 2,732 3,757Incremental cash flow is calculated as (cash flowB− cash flowA), where B represents the alternative with the larger initial investment. If the two cash flows were switched wherein B represents the one with the smaller initial investment, which alternative should be selected if the incremental rate of return is 20% and the MARR is 15%? Explain.
