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)