fin chapter 8
profitability index rule
investment is accepted if its PI is greater than one
pay back rule
investment is accepted if its calculated pay back period is less than some respecified number of years
NPV rule
investment should be accepted if NPV is positive and rejected if negative
pay back period
length of time required for an investment to generate cash flows sufficient to recover its initial cost is `
Mutually exclusive investment decisions
situation in which one investment prevents the taking of another is called
Internal rate of return
the discount rate that makes the net present value of an investment exactly equal to zero is
Profitability index
the present value of an investment future cash flow divided by the initial cost
if you can ignore the cash flows beyond a specific point and time value of money...
use the payback rule
net present value
difference between the market value of an investment and its costs (considered the best in principle)