MG6863 Engineering Economics
Unit 3 Cash Flow
Part-A
1. What is meant by rate of
return method?
This method takes into account the total earnings expected from an investment proposal over its full life time. It also uses the
accounting concept of profit.
2. Mention the various rate
of return method.
(i)
Internal rate of return
(ii)
Average of return
(iii)
Net present value method
(iv)
Payback period
3. What is meant by revenue
dominated cash flow?
The
profit/revenue, salvage values of all inflows to an organisation will be
assigned with positive sign and the costs outflows will be assigned with
negative sign is called revenue dominated cash flow.
4. What is meant by cost
dominated cash flow?
The
cost outflows will be assigned with positive sign and the profit, revenue,
salvage values all inflows etc.,will be assigned with negative sign is called
cash dominated cash flow.
5. What is meant by annual
equivalent method?
It
is used for measuring investment worth by determining equal payments on an
annual basis.
AE(i)=PW(i) (A/P,i,n)
6. What is present worth
method?
It
measures the surplus in an investment project at time zero.The present worth
of all cash inflows is compared against the present worth of all cash outflows
associated with an investment of project.
7. What is future worth
analysis?
Net
future worth measures the surplus at a time period other than 0. It is
particularly useful in an investment situation where we need to compute the
equivalent of project at the end of its investment period.
8. What is rate of return?
It
is the break even interest rate (i) which equates the present worth of a
project’s cash outflows to present worth of its cash inflows.
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