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2 years ago

Why are discounted cash flow methods of making capital budgeting decisions superior to other methods?

Business

1 answer:

Katyanochek1 [597]2 years ago

5 0

Answer:

Discounted cash flow strategies consider the time value of the currency and consider all future cash flows.

Explanation:

Discounted cash flow approaches recognize the value of money, and take into consideration all investment returns, unlike other traditional capital budgeting approaches.

Discounted cash flow is an accounting tool used to measure an investment's worth based on its future revenues.

Discounted Cash Flow analyses are trying to figure out the value of the company now, based on estimates of how much revenue it will make in the future.

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Consider the following information about a banking system: new currency deposited in the system = $40 billion, legal reserve rat

Vlada [557]

Answer:

The bank will create excess reserve of $200 billion

Explanation:

The question measures the size of credit expansion associated with the new currency deposit. the computation below shows how excess reserves can be computed.

Money multiplier = 1 /Legal Reserve Ratio = 1/0.2 = 5

Excess Reserve Created = A x (1 /Legal Reserve Ratio)

Where: A = New currency deposit = $40

Legal Reserve Ratio = 0.20

Excess Reserve Created = $40 x (1/0.2) = $40 x 5 = $200 billion

The legal reserve of 5 indicates that for every unit of money reserved by banks, they are able to create 5 units of same.

The money creation capability of the banking system as a whole is depends on the legal reserve ratio. Legal reserve ratio is a fraction of a bank deposit which the law requires them to hold. The bank can only lend the balance after deducting the legal reserve.

3 0

3 years ago

What are the potential risks of having all three of these buckets (savings, investments and debt payments) belong in the same ca

Vlad [161]

The potential risks that these three groups fall into the same category is that it is a low percentage and it is not a realistic proposition.

According to the theory of 50, 20, 30, a person's salary should be divided into 3 buckets that are:

50% of salary must go towards mandatory expenses (housing rent payments, utilities, medical care, basic food, and transportation).
20% of the salary must be used for savings and debt payments (programmed savings for old age or a special event, or the payment of debts such as card payments, bank loans, among others).
30% of the salary must be allocated for non-priority expenses (it is the expenditure of money on experiences, objects, or others that are not essential for the individual).

This income distribution is unrealistic because most people spend more than 50% of their salary on compulsory expenses, reducing their economic capacity for other purposes.

In this way, the 20% destined to savings and payment of debts would be a minimum amount of the salary, which could have serious consequences such as:

Inability to pay debts
Inability to save for the future

Learn more in: brainly.com/question/12198015

5 0

2 years ago

Jim has an annual income of $180,000. Jim is looking to buy a house with monthly property taxes of $140 and monthly homeowners i

MariettaO [177]

Answer:

$787,471.02

Explanation:

Given:

Jim's annual income = $180,000

Monthly property taxes = $140

Monthly homeowners insurance = $70

Monthly student loan payments = $178

Maximum front end DTI limit = 28%

Maximum back end DTI limit = 36%

Amortizing period = 30 years = 360 months

annual rate = 4.5% compounded monthly

Now,

Monthly salary = $\frac{\textup{Annual income}}{\textup{12 months}}$

Monthly salary = $\frac{\textup{180,000}}{\textup{12 months}}$

Monthly salary = $15,000

Maximum front end DTI limit

= (Maximum Monthly loan payment + monthly property taxes + monthly homeowner's insurance) ÷ Monthly income

0.28 × $15,000 = Maximum Monthly loan payment + $140 + $70

Maximum Monthly loan payment = $4,200 - $140 - $70

= $3,990

and,

Maximum back end DTI limit =

0.36 × $15,000 = Maximum Monthly loan payment + $140 + $70 + $178

Maximum Monthly loan payment = $5,400 - $140 - $70 - $178

= $5,012

Now,

The monthly payment = minimum of [ $3990, $5012 ]

therefore,

The monthly payment = $3,990

Thus,

The maximum amount of loan = Monthly payment × $[\frac{(1-(1+\frac{r}{k})^{-kn})}{(\frac{r}{k})}]$

here,

k = 12 when compounded monthly

n = 30 years

r = 4.5% = 0.045

The maximum amount of loan = $3,990 × $[\frac{(1-(1+\frac{0.045}{12})^{-12\times30})}{(\frac{0.045}{12})}]$

The maximum amount of loan = $787,471.02

8 0

2 years ago

In a decision support system graphical model typically _____

AURORKA [14]

The answer would be A. A DDS supportive framework called GMCA (Graph Model for Conflict Analysis) actualizing the multi-player chart display for dissecting clashes is produced. GMCA contains calculations for the fast calculation of an extensive variety of arrangement ideas, in this way empowering leaders to assess the assorted variety of human conduct.

6 0

3 years ago

An economy produces only apples and oranges. The base year is 2012, and the table gives the quantities produced and the prices

Mashutka [201]

Iuuu is bigger then her

6 0

1 year ago