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Simple Interest
Definition
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Interest is
- linearly proportional to the principal, interest rate & number of
- interest periods
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Equivalent worth of
all cash flows relative to the time called "present"
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Equivalent worth of
- all cash inflows and outflows at the end of the planning horizon at an
- interest rate that is generally the MARR
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An equal annual
- series of dollar amounts for a stated study period, that is equivalent to the
- cash inflows and outflows at an interest rate that is generally MARR
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Internal Rate of
Return Method (IRR)
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Solves for the
- interest rate that equates the equivalent worth of an alternative's cash
- inflows to the equivalent worth of cash outflows.
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Single Payment
Present Worth
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P = F(P/F, i%, N)
Something will be worth F in the future, what should you pay for it now?
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Minimum Attractive
Rate of Return
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A family of
analysis techniques aimed at scheduling activites on a project
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Allows us to
compare alternatives on a common basis
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Single payment
uniform series (F/A)
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External Rate of
Return (ERR)
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Takes into account
- the interest rate external to a project at which net cash flows generated (or
- borrowed) by the project over its life can be reinvested (or borrowed)
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