The rate of return obtained by dividing
the average accounting net income by
the original investment (or by average
investment). Page 676
Chapter 14
The process of making capital investment
decisions. Page 670
Chapter 14
Paying interest on interest. Page 672
Chapter 14
The factor used to convert a future cash flow
to its present value. Page 672
Chapter 14
Future cash flows expressed in present-value
terms. Page 678
Chapter 14
A series of future cash flows. Page 673
Chapter 14
The process of planning, setting goals
and priorities, arranging financing, and
identifying criteria for making long-term
investments. Page 670
Chapter 14
The cost of investment funds, usually viewed
as a weighted average of the costs of funds
from all sources. Page 678
Chapter 14
The rate of return used to compute the
present value of future cash flows. Page 672
Chapter 14
The act of finding the present value of
future cash flows. Page 672
Chapter 14
Capital investment models that explicitly
consider the time value of money in
identifying criteria for accepting and
rejecting proposed projects. Page 674
Chapter 14
Projects that, if accepted or rejected, will
not affect the cash flows of another project.
Page 670
Chapter 14
Projects that, if accepted, preclude the
acceptance of competing projects.
Page 670
Chapter 14
Capital investment models that identify
criteria for accepting or rejecting projects
without considering the time value of
money. Page 674
Chapter 14
A follow-up analysis of an investment
decision, comparing actual benefits and
costs with expected benefits and costs.
Page 684
Chapter 14
The value that will accumulate by the end of
an investment’s life if the investment earns a
specified compounded return. Page 672
Chapter 14
The rate of return that equates the present
value of a project’s cash inflows with the
present value of its cash outflows (i.e., it
sets the NPV equal to zero). Also, the rate of
return being earned on funds that remain
internally invested in a project. Page 680
Chapter 14
The difference between the present value of
a project’s cash inflows and the present value
of its cash outflows. Page 678
Chapter 14
The time required for a project to return its
investment. Page 674
Chapter 14
The current value of a future cash flow. It
represents the amount that must be invested
now if the future cash flow is to be received
assuming compounding at a given rate of
interest. Page 672
Chapter 14
A discounting method that divides the
present value of future cash flows by the
initial investment. Page 680
Chapter 14
A legal way to reduce net income for tax
purposes, creating a reduction in income
taxes payable. Page 694
Chapter 14
The minimum rate of return that a project
must earn in order to be acceptable. Usually
corresponds to the cost of capital. Page 678
Chapter 14