Table of Contents

## Which describes the purpose of doing a cost-benefit analysis?

Explanation: The whole purpose of a cost-benefit analysis is to allow management to make the best decisions using the measurment of profitability in a specific project or system. The model calculates all the income and benefits as well as all the associated costs, substracting the costs from the benefits.

## How is a cost-benefit analysis measured?

A cost-benefit analysis (CBA) is the process used to measure the benefits of a decision or taking action minus the costs associated with taking that action. A CBA involves measurable financial metrics such as revenue earned or costs saved as a result of the decision to pursue a project.

## Which of the following best explains why any determination of cost must go?

Answer: Option (A). Calculations of cost and benefit are subjective best explains why any determination of cost must go beyond counting the money involved.

## Which is happening when the GDP is neither rising nor falling?

Explanation: Stagnation is happening when the GDP is neither rising nor falling. So when there is no increase or decrease in the gross domestic product of a country, the country is said to be in stagnant position. Stagnation is basically a state of being stopped, frozen, not flowing, not moving, etc.

## Which of the following would result in an increase in GDP?

Explanation: More investments mean that there is more money in the economy, leading to more investments, which will come with higher amounts of money as a reward, and a high GDP.

## How does GPD work?

Gross domestic product tracks the health of a country’s economy. It represents the value of all goods and services produced over a specific time period within a country’s borders. Investors can use GDP to make investments decisions—a bad economy means lower earnings and lower stock prices.

## Which shows that an economy is growing?

The most accurate measurement of growth is real GDP. It removes the effects of inflation. The GDP growth rate uses real GDP. The World Bank uses gross national income instead of GDP to measure growth.

## What are the four main sources of economic growth quizlet?

Economic Growth

- Resources.
- Investment.
- Human Capital.
- Physical Capital.

## What is economic growth and how do we calculate its rate quizlet?

Economic growth can be measured either as an increase in real GDP over time or as an increase in real GDP per capita over time. How much has REAL GDP grown in the US since 1950? Real GDP in the US has grown at an annual rate of about 3.2% since 1950. You just studied 37 terms!

## What defines a healthy economy?

A healthy traditional economy in steady state has the following three conditions: Systemic strength: low concentration of wealth, low concentration of commerce (i.e., healthy competition) Stable micro-economic conditions: consistent consumer prices, broad and recursive market participation (e.g. low unemployment)

Table of Contents

## Which describes the purpose of doing a cost benefit analysis?

Explanation: The whole purpose of a cost-benefit analysis is to allow management to make the best decisions using the measurment of profitability in a specific project or system. The model calculates all the income and benefits as well as all the associated costs, substracting the costs from the benefits.

## How are costs and benefits calculated?

The cost-benefit equation is simply the costs of the project divided into the anticipated returns. If the projected revenue is more than the projected cost, the ratio is positive. However, the formula for the cost-benefit analysis accounts for variables such as inflation and other discounting principals.

## What’s a good payback period?

As much as I dislike general rules, most small businesses sell between 2-3 times SDE and most medium businesses sell between 4-6 times EBITDA. This does not mean that the respective payback period is 2-3 and 4-6 years, respectively

## What is the advantage and disadvantage of payback period?

Payback period advantages include the fact that it is very simple method to calculate the period required and because of its simplicity it does not involve much complexity and helps to analyze the reliability of project and disadvantages of payback period includes the fact that it completely ignores the time value of …

## How do you explain NPV?

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.

## What is NPV method?

Net present value (NPV) is a method used to determine the current value of all future cash flows generated by a project, including the initial capital investment. It is widely used in capital budgeting to establish which projects are likely to turn the greatest profit.

## Is higher NPV better or lower?

Obviously, more cash is better than less. The higher the discount rate, the deeper the cash flows get discounted and the lower the NPV. The lower the discount rate, the less discounting, the better the project. Lower discount rates, higher NPV

## What is better higher NPV or IRR?

If a discount rate is not known, or cannot be applied to a specific project for whatever reason, the IRR is of limited value. In cases like this, the NPV method is superior. If a project’s NPV is above zero, then it’s considered to be financially worthwhile

## Do you want a high or low IRR?

Typically, the higher the IRR, the higher the rate of return a company can expect from a project or investment. The IRR is one measure of a proposed investment’s success. However, a capital budgeting decision must also look at the value added by the project.

## What is a good IRR value?

If you were basing your decision on IRR, you might favor the 20% IRR project. But that would be a mistake. You’re better off getting an IRR of 13% for 10 years than 20% for one year if your corporate hurdle rate is 10% during that period

## What is difference between IRR and ROI?

ROI indicates total growth, start to finish, of an investment, while IRR identifies the annual growth rate. While the two numbers will be roughly the same over the course of one year, they will not be the same for longer periods

## Is IRR same as interest rate?

The IRR is the interest rate (also known as the discount rate) that will bring a series of cash flows (positive and negative) to a net present value (NPV) of zero (or to the current value of cash invested). Using IRR to obtain net present value is known as the discounted cash flow method of financial analysis.

## How do you convert IRR to percentage?

How to Measure the Success of Your Investments

- NPV= net present value.
- T= number of time periods.
- Ct= total net cash flow during period t.
- C0= total initial investment costs.
- *This formula is best solved by using a financial calculator or Excel.
- IRR Calculation in Excel =XIRR(E3:E4,A3:A4)= 12%
- ROI Calculation = (000-1) x100= 200%

## Is IRR calculated per year?

Internal rate of return (IRR) is the annual rate of growth an investment is expected to generate. IRR is calculated using the same concept as NPV, except it sets the NPV equal to zero. IRR is ideal for analyzing capital budgeting projects to understand and compare potential rates of annual return over time.

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