Business Chapter 10 Flashcards
Average rate of return or accounting rate of return (ARR)
A method of investment appraisal that measures the net return per annum as a percentage of the initial spending
Capital cost
The amount of money spent when setting up a new venture
Cash inflow
The cash coming into the business such as that from sales or bank loans
Cash outflow
The cash going out of the business when payments are made to workers on suppliers, for example
Discounted cash flow (DCF )
A method of investment appraisal that takes interest rates into account by calculating the present value of future income
Investment
The purchase of capital goods
Investment appraisal
The evaluation of an investment project to determine whether or not it is likely to be worthwhile
Net cash flow
Cash inflows minus cash outflows
Net present value (NPV )
The present value of future income from an investment project minus the cost
Opportunity cost
When choosing between different alternatives, the opportunity cost is the benefit lost from the next best alternative to the one that has been chosen
Payback method
The amount of time it takes to recover the cost of an investment project
Present value
The value today of a sum of money available in the future
Qualitative
Represented by words
Quantitative
Represented by numbers
