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Flashcards in Week 13 - Workshop Questions Deck (4)
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1

What is the ‘Equal Annual Benefit Model’?

The Equal Annual Benefit Model allows for easy comparison between the NPV of a shorter and longer project.

2

How is the ‘Equal Annual Benefit’ calculated?

EAB = NPV x Cost of Capital/ 1-1/1.cost of capital (1.cost of capital is raised to the t)

3

How is an ‘Annual Cost of Capital’ converted into a monthly ‘cost of capital’?

((1+Cost of Capital)’1/12) - 1 = Monthly Discount Rate

(1/12 is raised)

4

How to calculate the NPV using monthly discount rate?

FCF/Monthly discount rate* (1- 1/(1.monthly discount rate)raised to t)