Ch (4):

• NPV = −Cost + PV

• Compounding Periods:

• Continuous Compounding:

• Effective Annual Rate:

• EAR= (1+m) −1

• Growing Perpetuity:

• Annuity

• Growing Annuity:
 •
Ch(5):

• Net Present Value (NPV) = Total PV of future CFs + Initial investment

• The Profitability Index:

Ch(6):

• OCF = EBIT − Taxes + Depreciation

• Top-Down Approach:
• OCF = Sales – Cash costs – Taxes

• Bottom-Up Approach:

• OCF = Net income + Depreciation

• Tax Shield Approach:

• OCF = (Sales – Cash costs ) (1– TC) + Depreciation × TC
Ch(4):

The Net Present Value (NPV): is the present value of the expected cash flows, less the cost of
the investment.

Perpetuity: A constant stream of cash flows that lasts forever.

Growing perpetuity: A stream of cash flows that grows at a constant rate forever.

Annuity: A stream of constant cash flows that lasts for a fixed number of periods.

Growing annuity: A stream of cash flows that grows at a constant rate for a fixed number of
periods.

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Ch(5):

Payback Period: number of years to recover initial costs

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Ch(6):

Equivalent Annual Cost: is the value of the level payment annuity that has the same PV as our
original set of cash flows.