In Calculating the Net Present Value of an Investment in Equipment

question 130

True/False

In calculating the net present value of an investment in equipment, the required investment and its terminal residual value should be subtracted from the present value of all future cash inflows.

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Definitions:

Weighted Average Cost

This is often used in the context of 'Weighted Average Cost of Capital (WACC)', which measures a company's cost of capital from all sources weighted by their relative use in the financial structure.

EPS

Earnings Per Share is a company's profit divided by the outstanding shares of its common stock, serving as an indicator of a company's profitability.

Business Risk

Business risk relates to the potential that a company's operations or environment will lead to financial loss or failure.

Capital Structure

The mix of different forms of capital a company uses to finance its operations and growth, including debt, equity, and hybrid securities.