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To create a data.table object of combination of correlation coefficients, we first need to find the correlation matrix then the combination of variables for which the correlation matrix is created then data.table will be used to combine the combination of variables and the correlation coefficients.Check out the below Examples to understand how it can be done.Example 1Following snippet creates a sample data frame −x1
Sometimes we have a large number of columns in the data frame and we know the name of some columns but among known ones some does not exist in the data frame. Now if we want to select the columns that we know and skip the ones that do not exist then we can use the subsetting.For Example, if we have a data frame called df that contains twenty columns and we believe that x, y, z exists in df but z is not there in reality. Now the selection of columns x, y, z that will skip z can ... Read More
Suppose we have a vector say V that contains five elements and a matrix say M that has five columns. Now again, suppose that we want to divide each column in M by corresponding value in vector V, which means first column in M will be divided by first value in the V and so on then we can use the sweep function as shown below −sweep(M,2,V,FUN="/")Example 1Consider the below matrix and vector −M1
Payback is a method related to capital budgeting. The payback period in capital budgeting refers to the time required for the return on an investment (ROI) to "repay" or pay back the total sum of the original investment.Payback is a popular method of evaluation of investment because it is easy to understand and calculate regardless of what it actually means.Despite being a non-DCF evaluation method, payback is used extensively in the evaluation of investments for its simplicity in calculation and application. It is quite useful in comparing the calculation of similar investments.The payback method doesn’t have any specific criteria for ... Read More
The "discounted payback period" is a modification of the simple payback version where the time value of money is considered in the calculation. In discounted payback period calculation, different metrics are used to measure the amount of time the project will take to "break-even."In some cases, the discounted payback is measured to the point of time where the net cash flows generated from the project cover the initial cost of the project.Simple and discounted payback periods are both used to measure the profitability and feasibility of an investment project.Underlying Meaning of Discounted Payback PeriodThe discounted payback period is used to ... Read More
All typical investments have the following three types of cash flows −Initial investmentYearly net cash flowsTerminal cash flowsInitial InvestmentThe initial cost is the cost of assets in the beginning phase of a project. It is the net outlay in the given period when an asset is purchased.Gross Outlay or Original Value (OV) is a major element of initial investment which includes the costs of accessories and spares, and freight and installation charges. The OV is included in the block of an asset to calculate the depreciation. Original value minus depreciation is the book value (BV) of the asset.A lumpsum investment ... Read More
The Profitability Index (PI) shows a parallel between the expenses and profits of a certain project. It is obtained by dividing the net present value of the property’s future cash flows by the initial investment.When the profitability index is over 1.0, it is positive and the investment will generate profits.If the PI is less than 1.0, then it is negative where the investment will probably fail.In other words, the profitability index is the ratio between the net present value of future cash flows and the initial investment.A profitability index number of 1.0 is likely the lowest desired number for investors. ... Read More
The "cost of debt" can let one understand what they are paying for the benefit of having fast access to cash. The cost of debt is calculated by adding up all loans, balances on credit cards, and other financing tools the company has. The interest rate expense for each year is found and added. Next, the total interest is divided by the total debt to get the cost of debt.Cost of Debt FormulaThere are multiple ways to calculate the cost of debt, depending on pre-tax or post-tax rates. The pre-tax cost of debt is calculated with the above method and ... Read More
The method that is used to calculate the cost of capital for divisions can also be used to determine the cost of capital of projects. It’s hard to find comparable projects that resemble each other in all aspects. The risk profiles of companies depend on their operating leverage. This should be remembered while determining the beta of a project. The variability of a project’s earning can also be used to determine the beta.A simple way to incorporate risk differences into similar projects is to add or subtract the risk associated with the project. So, the weighted average cost of capital ... Read More
Although being a disputed matter in the financial world, the cost of capital is an important measure that helps the managers in decision-making in the correct manner. The following are the reasons why the cost of capital is an important measure −Evaluation of InvestmentThe cost of capital is used in both NPV and IRR methods of investment evaluation.In the NPV method, a project is accepted if it has a positive NPV. The project’s NPV is usually calculated by discounting its cash flows by the cost of capital. In this sense, the cost of capital is the discount rate used to ... Read More