Capital Investment Decisions / Term Loans
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
One-liners from this chapter
Free sample — 8 of 84 rapid-fire Q&A cards.
Define capital investment decision in banking context.
Long-term decision to set up plant, expand capacity, replace machinery, or launch product; ties up funds for years.
What is the central question every appraisal method must address?
Is future stream of cash inflows worth the upfront cash outflow?
Name two Discounted Cash Flow (DCF) methods.
Net Present Value (NPV) and Internal Rate of Return (IRR).
Name two Non-Discounted Cash Flow methods.
Payback Period method and Accounting Rate of Return (ARR) method.
What does NPV measure?
Rupee surplus project creates by comparing present value of future net cash inflows with initial investment outlay.
NPV decision rule: accept or reject when NPV is positive?
Accept project; positive NPV adds to firm value.
Define IRR in capital budgeting.
Discount rate at which Net Present Value of investment becomes zero; inflows equal outflows.
IRR decision rule for independent projects: accept if IRR exceeds what?
Cost of Capital.
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