Formulas

Slide 1

Annual Net Income = Annual Cash Flow - Depreciation Accounting Rate of Return = Annual Net income / Initial Investment Payback Period = Initial Investment / Annual Net Cash Flow                              =Initial Investment / (Net Income + Depreciation) Profitability Index = PV of future cash flows / Initial Investment Internal Rate of Return = Use Excel Function =IRR[value, rate], 10% is default rate. Net Present Value = Sum Present Values of cash flows (negative NPV = unacceptable)