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An investor has the choice between two investments. Investment Exe offers interest of 4% per year
compounded semi-annually for a period of three years. Investment Wye offers one interest payment of 20% at
the end of its four-year life.
What is the annual effective interest rate offered by the two investments?
Investment Exe Investment Wye
A 4·00% 4·66%
B 4·00% 5·00%
C 4·04% 4·66%
D 4·04% 5·00%You can find an explanation in my previous post:
https://opentuition.com/topic/annual-effective-interest-rate-2/
Hello!!
My question is should we include depreciation in annual cashflow while computing NPV, payback period ?
Because in some questions depreciation is include in annual profits and in some it is not so please clear my confusion should we add depreciation in annual profits OR annual cash flow ?Both the NPV and the payback period methods of appraisal are cash based measures. Given that profits are after charging depreciation which is not a cash flow, we need to add back the depreciation to the profit to get the cash flow.
Have you watched my free lectures on this? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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