
What's cost of capital?
An entity's cost of capital is equal to the weighted avg of the cost of debt, preferred & CS, & RE, with their markt values as weights.

Probability formula
1)find Change in Market Value2) Probability factor X Change in value = Cost of investment

Pay Back period (present value factor) =
= Net incremental investment/ Net annual cash flowsNo concideration of time

NPV vs IRR methods
NPV  highlights amounts, more conservative, assumes reinvestment @ hurdle rateIRR  focuses decision makers on %, more agressive, assumes reinvestment @ IRR, less reliable.

Shortterm interest rates are generally ______ than longterm rates
LOWER

When do you accept NPV?
Investment should be made if NPV >0.If company has unlimited funds NPV > or =0.

Net Present Value =
= the PV of an investment's future net cash flows minus the initial investment.If positive, the investment should be made (unless an even better investment exists), otherwise it should not. the method that recognizes the time value of money by discounting the after tax cash flows over the live of a project, given the company's minimum desired rate of return.

Popular methods of capital budgeting include
net present value (NPV), internal rate of return (IRR), discounted cash flow (DCF) and payback period.

Profitability index =
NPV =
PROJECT Profitability index =
 PV of CF / Investment
 PV of CF  Investment
 NPV/ Investment

The payback period serves as a fair approximation of ?
of the annity factor value used in estimaiting the IRR

The profitability index is also known as
the excess present value index. it is a variation of NPV

What Does Present Value Interest Factor Of Annuity  PVIFA Mean?
A factor which can be used to calculate the present value of a series of annuities. The initial deposit, earning interest at the periodic rate (r), perfectly finances a series of (N) consecutive dollar withdrawals. PVIFA is also a variable used when calculating the present value of an ordinary annuity (is an annuity whose payments are made at the end of each period). PVIFA = [ (1 + r)^N]/r

