Home / CPA Course / BAR
Investment decisions
BAR Chapter 7 · Area I · Blueprint I.B.3
Should we buy the machine, lease it, or keep the old one? Make the part or buy it? The Blueprint asks you to compare investment alternatives with present value, net present value, internal rate of return, payback, economic value added and cash flow analysis, and to judge how changes in assumptions, such as the inputs to an option pricing model, change a value. Summit Medical Labs is deciding whether to buy a $500,000 blood analyzer, and every method gets a turn.
In this chapter
- The time value of money
- Relevant cash flows and net present value
- Internal rate of return and the profitability index
- Payback, discounted payback and accounting return
- Economic value added and residual income
- Option pricing: what drives the value
- Make or buy, lease or buy, replace or keep
- Choosing among alternatives
This chapter has 8 lessons, 50 practice MCQs with explanations and 20 simulations, plus flashcards and a recall sheet.
What this chapter covers
- Present value and NPV
- option pricing inputs
- payback, IRR and economic value added
- make, lease or buy