Calculation of Break-Even Analysis
The basic formula for break-even analysis is driven by dividing the total fixed costs of production by the contribution per unit (price per unit less the variable costs). For an…
Opportunity Cost
What Is Opportunity Cost? Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another. While financial reports do not show opportunity cost, business owners can…
Time Value of Money (TVM)
What Is the Time Value of Money (TVM)? The time value of money (TVM) is the concept that money you have now is worth more than the identical sum in the future…
The Meaning of Equivalence
In order to evaluate investment alternatives, sums of money produced at different points in time must be compared. This is only possible if their characteristics are analysed on an equivalent…
Factor Formulas
The table below summarizes the equivalency factors . The Name column shows the traditional names for the factors. Each factor has a formula that depends on i, the interest rate per compounding period,…
Equivalent annual cost
In finance, the equivalent annual cost (EAC) is the cost per year of owning and operating an asset over its entire lifespan. It is calculated by dividing the NPV of a project by the…
cost dominated cash flow diagram
Cash Flow Cash flow is the sum of money recorded as receipts or disbursements in a project’s financial records. A cash flow diagram presents the flow of cash as arrows…
WORKEDOUT PROBLEMS
Single-Payment Compound Amount A person deposits a sum of Rs. 20,000 at the interest rate of 18% compounded annually for 10 years. Find the maturity value after 10 years. Solution…
Annual equivalent method
In most of the practical decision environments, executives will be forced to select the best alternative from a set of competing alternatives. Let us assume that an organization has a…
FUTURE WORTH METHOD
· In this method, the future worth of various alternatives will be computed. Then, the alternative with the maximum future worth of net revenue or with the minimum future worth of…
