Maritime Financial Management

Compounding is the process of calculating the:

• Present value of future cash flows

• Future value of present cash flows

• Present value of preset cash flows

• Future value of future cash flows

Discounting is the process of calculating the:

• Future value of present cash flows

• Present value of preset cash flows

• Present value of future cash flows

• Future value of future cash flows

If the discounting factor of year 3 is $0.8, it means that:

• $0.8 is the future value of $1 now

• $1 is the present value of $0.8 in 3 years

• $0.8 is the present value of $1 in 5 years

• $0.8 is the present value of $1 in 3 years

If the discounting factor of year 5 and assuming cost of capital of 5% is $0.8, it means that:

• $0.8 is the present value of $1 in 5 years with annual compounding of 3%

• $0.8 is the present value of $1 in 5 years with annual compounding of 5%

• $0.8 is the present value of $1 in 3 years with annual compounding of 3%

• $0.8 is the present value of $1 in 3 years with annual compounding of 5%

Net Present Value (NPV) is:

• Total discounted free cash flows to all capital providers minus total invested capital

• Total undiscounted free cash flows to all capital providers minus total invested capital

• Total discounted net profits minus total invested capital

• Total discounted free cash flows to all capital providers minus invested equity capital

Using the NPV approach, an investment is lucrative when the:

• Aggregate free cash flows to all capital providers discounted by the cost of equity is higher than total invested capital

• Aggregate free cash flows to equity capital providers discounted by the weighted average cost of capital is higher than total invested capital

• Aggregate free cash flows to equity capital providers discounted by the cost of equity is higher than total invested capital

• Aggregate free cash flows to equity capital providers discounted by the cost of equity is higher than invested equity capital 

Internal Rate of Return (IRR) is:

• The discount rate that makes NPV positive

• The discount rate that makes NPV negative

• The discount rate that makes NPV zero

• The discount rate that makes total undiscounted free cash flows zero

Internal Rate of Return (IRR) is equal to:

• The hurdle rate of return

• The cost of equity

• The cost of debt

• The actual return of the investment

Internal Rate of Return (IRR) to equity capital providers is equal:

• The hurdle rate of return to equity capital providers

• The cost of equity

• The actual return on equity capital

• The total discounted free cash flows to equity capital providers

Internal Rate of Return (IRR) to all capital providers is equal:

• The hurdle rate of return to all capital providers

• The actual return on total capital

• The cost of capital

• The total discounted free cash flows to all capital providers