accounting rate of returnA project evaluation tool that focuses on accounting income rather than cash flows; average annual increase in income by the amount of initial investment.
annuityLevel streams of payments; with each payment being the same, and occurring at a regular interval
annuity dueAlso known as an annuity in advance; involves a level stream of payments, with the payments being made at the beginning of each time period
capital expenditure decisionAlso known as capital budgeting; planning and decision making related to longer term projects and expenditures
future valueOr "compound interest;" amount that a current payment (or stream of payments) will grow in time; includes interest on previous interest based on frequency of compounding
internal rate of returnAlso known as time-adjusted rate of return or IRR; discount rate causing present value of cash inflows to equal present value of the cash outflows
net present valueOr NPV, a method of evaluating capital projects that uses a predetermined interest rate to determine the present value of an investment's net cash inflows and outflows
opportunity costThe cost of a foregone alternative; may include lost revenue
ordinary annuityAlso known as an annuity in arrears; involves a level stream of payments, with the payments being made at the end of each time period
outsourcingUtilization of independent parties to manufacture products (sometimes known as make-or-buy) or manage data processing, tech support, payroll services, etc.
payback methodEasy method for evaluating capital projects; calculated by dividing the initial investment by the annual cash inflow
present valueAlso known as discounting; determines the current worth of cash to be received in the future
relevant costItems where future costs and revenues are expected to differ for the alternative decisions under consideration
special orderA customer order that is outside of the normal pricing and terms
sunk costHistorical amount expended on a project or object; not relevant to current decisions or future actions
time value of moneyConceptual notion holding that money to be received sooner is worth more than money to be received later
From Chapter 24:
In the context of capital budgeting, assume two alternative investments have the same upfront cost. Investment Alpha returns $100 per year for each of the next 5(...)
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