Identity Crisis
An expression that break ROE into three parts
What is the DuPont Identity?
The discount rate that make the NPV of a project zero
The difference between a project's discounted cash flows and its cost
What is Net Present Value?
The difference between a firm's cash flows with a project and without it
What are incremental cash flows?
The present value of a project's cost calculated on an annual basis
What is Equivalent Annual Cost?
Part of Dupont ID that measure a firm's operating efficiency
What is the Profit Margin?
Another name for the Required Rate of Return (RRR) to which we compare the IRR
What is the hurdle rate?
The three kinds of cash flows used to find NPV
What are OCF, NWC, and FA?
The principle of evaluating a project like it was a separate "minifirm"
What is the Stand-Alone Principle?
The Factor which gives the PV of a level stream of cash flows for a set period
What is the Annuity Factor?
Part of DuPont ID that measures a firm's asset management
What is Total Asset Turnover?
Cash flows in which one or more future flows are negative, creating problems with IRR
What are nonconventional cash flows?
What we do when the NPV of a project is +$1.00
What is ACCEPT the project?
Costs already incurred which can't be recovered
What are sunk costs?
How we find the Equivalent Annual Cost
What is divide NPV by the Annuity Factor?
Part of DuPont ID that measures a firm's leverage
A situation when taking a project prevents taking another, a problem for IRR
What is mutually exclusive projects?
The cash flow which must be handled outside the NPV function when using Excel
What is CF0?
Valuable alternatives that are given up if a project is undertaken
What are opportunity costs?
The payment we use to find the Annuity Factor on our calculator
What is $1?
The effect on ROE when the Equity Multiplier doubles
What is doubles?
The slope when we graph NPV vs discount rate
What is negative?
The situation where NPV breaks down
What is never?
Cash flows that come at the expense of the firm's existing cash flows
What is erosion or cannibalism?
The situation when we use EAC
What is when economic lives of two projects are different?