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Present value of $1
Present value of an annuity of $1
-Refer to the Figure.Ramona Kruss is considering two investments.Each will cost $20,000 initially.Project 1 will return annual cash flows of $10,000 in each of three years.Project 2 will return $5,000 in year 1,$10,000 in year 2,and $15,000 in year 3.Ramona Kruss requires a minimum rate of return of 10%.What is the net present value of Project 2?
Payback Rule
A capital budgeting method that determines the length of time required to recoup the initial investment from the cash inflows produced by the investment.
Time Value
The concept that money available today is worth more than the same amount in the future due to its potential earning capacity.
Profitability Index
A calculation used to assess the attractiveness of an investment, calculated as the present value of future cash flows divided by the initial investment.
Independent Project
A project that can be pursued without affecting the acceptance or funding of other projects, allowing for standalone consideration in decision-making.
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