Apply Time Value Concepts
Series 65 · Flashcards · Recall
SERIES 65 · FLASHCARDS
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QUESTION
State the defining condition for IRR in terms of NPV and cash flows.
QUESTION
Identify the sign of NPV when the discount rate
r
r
r
is above the project IRR (conventional cash flows).
QUESTION
State the formula for NPV given cash flows
C
F
t
CF_t
C
F
t
discounted at rate
r
r
r
.
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ANSWER
N
P
V
=
∑
t
=
0
n
C
F
t
(
1
+
r
)
t
NPV=\sum_{t=0}^{n}\frac{CF_t}{(1+r)^t}
N
P
V
=
∑
t
=
0
n
(
1
+
r
)
t
C
F
t
. NPV aggregates the discounted values of all cash flows from inception to calculate the net value added by the investment.
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