Question 1

Give the bolded term from the list that best describes each of the statements below. (please use the abbreviations!). Note: Some terms may be used more than once.

Net Present Value (NPV)

Future Value (FV)

Net Present Cost (NPC)

Annualized Cost Method (AC)

Internal Rate of Return (IRR)

Payback Period (PP)

Hurdle Rate (HR)

Discount Rate (DR)

1. This TVM method uses a discount rate to find the present value a project that has cash inflows and outflows. ___________________

2. This TVM method finds the discount rate at which the projects net cash inflows equal its net cash outflows. ___________________

3. This TVM method is used to compare two projects that only have cash outflows (i.e. no cash inflows). ___________________

4. This result is compared to the hurdle rate (i.e. minimum acceptable rate of return) to determine whether a project is worth pursuing. ___________________

5. This method says to accept the project if the result is greater than zero and to possibly reject the project if the result is less than zero. ___________________

6. Also called the Minimum Required Rate of Return this is used as a benchmark for evaluating project IRRs. ___________________

7. This method calculates the amount of time it takes to recover an investment. ___________________

8. This TVM method is used to correctly compare two or more cash-outlay projects that have unequal lives. ___________________

9. This is the rate used in TVM methods to reduce cash flows to their present values. ___________________

10. This TVM method values a project on a return percentage basis (example: 6%). ___________________

11. This TVM method is used to determine what an amount invested today will be worth several years from now. ___________________