| A | B |
|---|
| goal of financial management | create value for the stockholders |
| value added | increase in value after the fact |
| net present value | difference between an investment's market value and its cost |
| another definition of NPV | the difference between the present value of the future cash flows and the cost of the investment |
| an investment should be accepted if the NPV is | positive |
| An investment should be rejected if the NPV is | negative |
| NPV rule | aninvestment should be accepted if the NPV is potive and rejected if the NPV is negative |
| payback | length of time it takes to recover our initial investment |
| Payback period rule | an investment is acceptable if its calculated payback period is less than some prespecirfied number of years |
| an investment is acceptable if its calculated payback period is _____ than some presspecified number of yrs | less |
| The payback period is cqalculated by adding up the | future cash flows |
| The payback rule has _____ discounting involved | no |
| In the payback rule, the ________is completely ignored | time value of money |
| the payback rule fails to consider | risk differences |
| the payback would be calculated the ___ way for both very risky and very safe projects | same |
| a big problem with the payback period rule is coming up the the right _____ | cutoff period |
| using a payback period rule will tend to bias us towards ____term investments | shorter |
| the payback period rule is often used for ____ decisions | minor |
| the concept of a payback period is ___ and ___ | intuitive, easy to understand |
| payback is biased towards | liquidity |
| a payback period rule adjusts for the extra riskiness of | later cash flows |
| the payback period is a kind of | break-even measure |
| the average accounting return is the ___ divided by the ___ | avg. net income, avg. book value |
| Based on AAR, a project is acceptable if its AAR____a target AAR | exceeds |
| the AAR is a | ratio of two accounting numbers |
| the AAR is not | a rate of return in any meaningful economic sense |
| Based on IRR rulel, an investment is _____ if the IRR exceeds the required return | acceptable |
| the IRR on an investment is the required return that results in a zero NPV when used as the | discount rate |
| the IRR is the discount rate that makes the NPV equal to | zero |
| the IRR is sometimes simply called the | discounted cash flow |
| the NPV rule and IRR rule lead to ____accept-reject dfecisions | identical |
| Problems arise with the IRR when ____ are not conventional | cash flows |
| IRR's are not good to use with | mutually exclusive investment decisions |
| the___is closely related to NPV, often leading to identifical decisions | AAR |
| with the MIRR, you first____the cash flows then calculate the IRR | modify |
| Two types of MIRR are | discounting approach, reinvestment approach |
| there are different ways of calculating this | MIRR |
| Another word for Profitability Index | benefit-cost ratio |
| the PI would be ___for a positive NPV investment | bigger than 1.00 |
| the PI would be ____ for a negative NPV investment | less than 1.00 |
| The most common methods for investment criteria used now are | IRR and NPV |
| the difference between the market value of an asset or project and its cost is the | NPV |
| the best projects are those with | positive NPV's |
| NPV's cant usually be observed; they must be | estimated |
