Ch 13 - Capital Budgeting Flashcards Preview

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Flashcards in Ch 13 - Capital Budgeting Deck (12):
1

Capital budgeting

The process of planning significant investments in projects that have long-term implications such as the purchase of new equipment or the introduction of a new product. (p. 580)

2

Cost of capital

The average rate of return a company must pay to its long-term creditors and shareholders for the use of their funds. (p. 585)

3

Internal rate of return

The discount rate at which the net present value of an investment project is zero; the rate of return of a project over its useful life. (p. 587)

4

Net present value

The difference between the present value of an investment project?s cash inflows and the present value of its cash outflows. (p. 581)

5

Out-of-pocket costs

Actual cash outlays for salaries, advertising, repairs, and similar costs. (p. 586)

6

Payback period

The length of time that it takes for a project to fully recover its initial cost out of the net cash inflows that it generates. (p. 597)

7

Postaudit

The follow-up after a project has been approved and implemented to determine whether expected results were actually realized. (p. 602)

8

Preference decision

A decision in which the alternatives must be ranked. (p. 580)

9

Project profitability index

The ratio of the net present value of a project?s cash flows to the investment required. (p. 596)

10

Screening decision

A decision as to whether a proposed investment project is acceptable. (p. 580)

11

Simple rate of return

The rate of return computed by dividing a project?s annual incremental accounting net operating income by the initial investment required. (p. 601)

12

Working capital

Current assets less current liabilities. (p. 583)