Professional Documents
Culture Documents
Travel expenses
Return on Investment
Net investment
Pay back Period =
Net annual income from investment
Payback Period
To calculate the pay back period, simply work out
how long it will take to recover the initial outlay.
However, this method fails to
Give considerations to cash precedes earned after
the pay back period
Take into account the difference in the timing of
proceeds earned prior to the pay back date.
Cash flow of two alternative machines
Year 0 1 2 3 4
Machine A
Cash flow (Birr) -35,000 +20,000 +15,000 +10,000 +10,000
Machine B
Cash flow (Birr) -35,000 +10,000 +10,000 +15,000 +20,000
100
E.g. A company receives USD 136 in 3 yrs. attaching a 13%
per annum time value of money. What amount would the
company receive today?
Present Value (PV) = discounted value = 136
(1 + 13)3
100
= 136 x
0.693
= USD 94.25
Discounting rate, cut-off rate, minimum rate of return
hurdle rate, cost of capital, opportunity cost of capital
1 = discount factor
(1 + r) n
Net Present Value
If you were offered $120 one year from now and the
inflation and interest rate was 20%, working backwards
its value in today's terms would be $100. This is called
the present value, and when the cash-flow over a number
of years is combined in this manner the total figure is
called the net present value (NPV).
Net Present Value
NPV = NCF0 + (NCF1 x DF1) + NCF2 x DF2) + …. + (NCFn x an)
IRR = L + NL (H – L ) , where
NL -NH
L= Low rate , H = high rate ,
NL= Net present value at low rate , NH= net
present value at High rate .
• Variable costs are those costs that vary
depending on a company's production
volume; they rise as production increases
and fall as production decreases. Variable
costs differ from fixed costs such as rent,
advertising, insurance and office supplies,
which tend to remain the same regardless
of production output.
• Here are a number of examples of variable
costs, all in a production setting:
• Direct materials. The most purely variable cost
of all, these are the raw materials that go into a
product.
• Piece rate labor. ...
• Production supplies. ...
• Billable staff wages. ...
• Commissions. ...
• Credit card fees. ...
• Freight out.
• What is a 'Liability'
• A liability is a company's financial debt or obligations that arise
during the course of its business operations. Liabilities are settled
over time through the transfer of economic benefits including
money, goods or services. Recorded on the right side of the balance
sheet, liabilities include loans, accounts payable, mortgages,
deferred revenues and accrued expenses.
•
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