Answer:
C
Explanation:
Capital budgeting are the methods employed by is the process that a businesses to determine which which investments to accept, and which should be declined.
Some of the capital budgeting methods are :
1. Net present value
Net present value is the present value of after-tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
2. Internal Rate of Return
Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested
3. Profitability Index
profitability index = 1 + (NPV / Initial investment)
4. Accounting rate of return = Average net income / Average book value
Average book value = (cost of equipment - salvage value) / 2
5. Payback period
Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows
Payback period = Amount invested / cash flow
6. Discounted payback period
Discounted payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative discounted cash flows
Answer:
C) $40,000.
Explanation:
As we know, the net income is a difference between the total revenues and the total expenditure incurred
Net income = Total revenues earned - Total expenditure incurred
= $100,000 - $60,000
= $40,000
By subtracting the total expenses from the total revenues we can find out the net income and the same method is applied in the above calculation
Answer:
the NPV of paying the points = $7,619.31
Explanation:
if the homeowner gets the loan at 6%, his/her monthly payment = $1,498.88
the present value of the 360 monthly payments at 6% is $250,000
if the homeowner gets the loan at 5.5%, his/her monthly payment = $1,419.47
in order to compare both loans, I will discount the 360 payments by 6%, instead of 5.5%:
PV = $1,419.47 x 166.79161 (PV annuity factor, 0.5%, 360 periods) = $236,755.69
the NPV of paying the points = -($250,000 x 2.25%) - $236,755.69 + $250,000 = $7,619.31