The decision maker has a fixed investment budget that may not be exceeded.(7,9)
CAPITAL＿RATIONING
Record investment cash flows when the money actually moves, not when the accountant using the accrual concept says they occur. And if the money doesn’t move, don’t count it.(4,4,9)
CASH＿FLOW＿PRINCIPLE
A standard of comparison that helps the analyst determine whether an investment’ figure of merit is attractive enough to warrant acceptance.(10,9)
ACCEPTANCE＿CRITERION
Annual average cash inflow divided by total cash outflow.(10,4,2,6)
ACCOUNTING＿RATE＿OF＿RETURN
Discount rate at which the investment’s NPV equals zero.(8,4,2,6)
INTERNAL＿RATE＿OF＿RETURN
The present value of cash inflows divided by the present value of cash outflows.(7,4,5)
BENEFIT＿COST＿RATIO
Cash that comes from the natural course of business and has no explicit cost.(11,7)
SPONTANEOUS＿SOURCES
Uses five basic variables to perform present value calculations.(9,10)
FINANCIAL＿CALCULATOR
A new product that will attract a number of customers who would otherwise purchase one of the company’s existing products.(15)
CANNIBALIZATION
The process of finding the present value of a future sum.(11)
DISCOUNTING
Any dividend, interest, or principal payments associated with the particular means by which a company intends to finance an investment.(9,5)
FINANCING＿COSTS
Earnings after tax + noncash charges – Investment(4,4,4)
FREE＿CASH＿FLOW
A number summarizing an investment’s economic worth.(6,2,5)
FIGURE＿OF＿MERIT
Imagine two worlds, one in which the investment is made and one in which it is rejected. All cash flows that are different in these two worlds are relevant to the decision, and all those that are the same are irrelevant.(12,9)
WITH-WITHOUT＿PRINCIPLE
A company has cash on hand, the discount rate is the rate of return available on alternative, similar-risk investments.(11,4,2,7)
OPPORTUNITY＿COST＿OF＿CAPITAL
A uniform cash flow occurring each period.(7)
ANNUITY
A dollar today is worth more than a dollar in the future.(4,5,2,5)
TIME＿VALUE＿OF＿MONEY
The time the company must wait before recouping its original investment.(7,6)
PAYBACK＿PERIOD
One that has already incurred and that, according to the with-without principle, is not relevant to present decisions.(4,5)
SUNK＿COSTS
A graphical display of a projects costs and benefits distributed along a time line.(4,4,7)
CASH＿FLOW＿DIAGRAM
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