Calculating ReTurn On Investment
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Which of the following might be considered a significant capital expenditure?
a campaign to increase customer awareness of a new product.
development of a new product.
renovation of an outdated factory.
the acquisition of another smaller corporation.
the purchase of a vehicle for employee travel.
->all of the above.
Score: 1 of 1
You are interested in buying a piece of equipment that should cost your business $10,000. The piece of equipment should last 5 years. You estimate the annual cash flow to be $2200. The required rate of return is 6%. Using the payback method, you can tell that
->this project could be worth exploring.
this project will have a sufficient return on investment to pursue.
this project should definitely be rejected.
the required rate of return is totally unrealistic.
Score: 1 of 1
You are interested in buying a piece of equipment that should cost your business $10,000. The piece of equipment should last 5 years. You estimate the annual cash flow to be $2200. The required rate of return is 6%. Using the net present value method
->1+i=1.06
1+i=4.5
1+i=1.5
1+i=1.08
Score: 1 of 1
What are two factors involved in establishing a required rate of return?
Present Value and Future Value
->Opportunity cost and cost of capital
Company stability and type of investment
Opportunity cost and hurdle rate
Score: 1 of 1
The principle of time value of money says that:
A dollar in your hand today is worth less than a dollar you expect tomorrow
->A dollar in your hand today is worth more than a dollar you expect tomorrow
Money has no potential earning capacity
Money will continue to be valued and desired
Score: 1 of 1
You are interested in buying a piece of equipment that should cost your business $10,000. The piece of equipment should last 5 years. You estimate the annual cash flow to be $2200. Using the IRR method
->could bias you toward a quick-payback project with a high-percentage return.
requires simpler calculations than the payback method.
is normally a more reliable method than NPV.
would tell you that the rate of return is $1,000.