Defining capital investment terms Fill in each statement with the appropriate capital investment analysis method: Payback, ARR, NPV, or IRR. Some statements may have more than one answer. a. —–— is (are) more appropriate for long-term investments. b. —–— highlights risky investments. c. —–— shows the effect of the investment on the company’s accrual-based income. d. —–— is the interest rate that makes the NPV of an investment equal to zero. e. —–— requires management to identify the discount rate when used. f. —–— provides management with information on how fast the cash invested will be recouped. g. —–— is the rate of return, using discounted cash flows, a company can expect to earn by investing in the asset. h. —–— does not consider the asset’s profitability. i. —–— uses accrual accounting rather than net cash inflows in its computation.
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Defining capital investment terms
Fill in each statement with the appropriate capital investment analysis method: Payback, ARR, NPV, or IRR. Some statements may have more than one answer.
a. —–— is (are) more appropriate for long-term investments.
b. —–— highlights risky investments.
c. —–— shows the effect of the investment on the company’s accrual-based income.
d. —–— is the interest rate that makes the NPV of an investment equal to zero.
e. —–— requires management to identify the discount rate when used.
f. —–— provides management with information on how fast the cash invested will be recouped.
g. —–— is the
h. —–— does not consider the asset’s profitability.
i. —–— uses accrual accounting rather than net
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