Answer:
c. Payback is the amount of time to recover the initial investment. No discounting occurs and all cash flows after the payback period are not accounted for. The rule is intuitive and used by small business owners
Explanation:
Net present value is the present value of after tax cash flows from an investment less the amount invested. The NPV does account for all cash flows as well as time value of money.
Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested
. The IRR does account for all cash flows.
The discounted payback period discounts cash flows
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Answer:
Cost price formula = Cost + Profit
Explanation:
The Cost price formulas count two factors the gives price of product and services. The cost price formula has two factors cost of product and profit percentage that seller want to generate from specific product or services.
Answer:
Comment for statement A - The firm must still compare the IRR with the opportunity cost of capital when using the IRR rule. Therefore, even with the IRR method, the appropriate discount rate must still be specified.
Comment for statement B - There should be a higher discount rate on risky cash flows than the rate used to discount less risky cash flows.
Making use of the payback rule is equivalent to using the NPV rule with a zero discount rate for cash flows before the payback period and an infinite discount rate for cash flows thereafter.
Explanation:
a)
“I like the IRR rule. I can use it to rank projects without having to specify a discount rate”
The firm must still compare the IRR with the opportunity cost of capital when using the IRR rule. Therefore, even with the IRR method, the appropriate discount rate must still be specified.
b.
“I like the payback rule. As long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects. That reduces risk”
There should be a higher discount rate on risky cash flows than the rate used to discount less risky cash flows.
Making use of the payback rule is equivalent to using the NPV rule with a zero discount rate for cash flows before the payback period and an infinite discount rate for cash flows thereafter.
Answer:
22
Explanation:
A monopoly will maximize profit at MR = MC ( marginal revenue = marginal cost)72
MR =MC
40 -0.5 Q = 4
-0.5 Q = 4 - 40 = -36
Q = -36 / -0.5 = 72
The price of the her product
Q = 160 - 4P
4P = 160 - 72 = 88
P = 88 / 4 = 22
