List and Briefly Explain the Principles of Risk Classification

question 29

Essay

List and briefly explain the principles of risk classification.

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Definitions:

Cash Outflows

Cash Outflows are the amounts of money paid out by a business in a period, including expenses, investments, and loans repayments.

Profitability Index

A calculation used to determine the relative profitability of an investment, computed by dividing the present value of future cash inflows by the initial investment cost.

Payback Technique

A method of evaluating investments by determining the length of time it will take to recoup the original investment amount.

NPV

Net Present Value, a calculation that discounts future cash flows to their present value to evaluate the profitability of an investment or project.