Question
Once cash flows have been estimated, which of the following investment criteria can be applied to them?
Multiple select question.
IRR
YTM
NPV
the constant growth dividend discount model
payback period
Multiple select question.
IRR
YTM
NPV
the constant growth dividend discount model
payback period
Answers
GPT-4o mini
Once cash flows have been estimated, the following investment criteria can be applied to them:
1. **IRR (Internal Rate of Return)** - This is the discount rate that makes the net present value (NPV) of the cash flows equal to zero. It is a widely used metric for evaluating the attractiveness of an investment.
2. **NPV (Net Present Value)** - This measures the difference between the present value of cash inflows and outflows over time. It is a key criterion for investment decision-making.
3. **Payback Period** - This is the time it takes for the cumulative cash flows from an investment to equal the initial investment. It assesses how quickly an investment can be recouped.
The following options are not typically used with cash flows in this context:
- **YTM (Yield to Maturity)** - This is primarily used in the context of bonds and fixed-income securities, not typically for evaluating general cash flows from investments.
- **The constant growth dividend discount model** - This model is specifically used for valuing the price of a stock based on the present value of future dividends that are expected to grow at a constant rate.
Thus, the applicable criteria from your list for evaluating cash flows are **IRR, NPV,** and **payback period**.
1. **IRR (Internal Rate of Return)** - This is the discount rate that makes the net present value (NPV) of the cash flows equal to zero. It is a widely used metric for evaluating the attractiveness of an investment.
2. **NPV (Net Present Value)** - This measures the difference between the present value of cash inflows and outflows over time. It is a key criterion for investment decision-making.
3. **Payback Period** - This is the time it takes for the cumulative cash flows from an investment to equal the initial investment. It assesses how quickly an investment can be recouped.
The following options are not typically used with cash flows in this context:
- **YTM (Yield to Maturity)** - This is primarily used in the context of bonds and fixed-income securities, not typically for evaluating general cash flows from investments.
- **The constant growth dividend discount model** - This model is specifically used for valuing the price of a stock based on the present value of future dividends that are expected to grow at a constant rate.
Thus, the applicable criteria from your list for evaluating cash flows are **IRR, NPV,** and **payback period**.