Chapter 10 Flashcards

1
Q

The process of decision making with respect to investments made in fixed assets, that is should a project be accepted or rejected

A

Capital Budgeting

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2
Q

The number of years it takes to recapture a project’s initial outlay

A

Payback Period

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3
Q

The number of years it takes to recapture a project’s initial outlay from the discounted free cash flows

A

Discounted Payback Period

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4
Q

The present value of an investment’s annual free cash flows less the investment’s initial outlay

A

Net Present Value (NPV)

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5
Q

The ratio of the present value of an investment’s future free cash flows to the investment’s initial outlay

A

Probability Index (PI)

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6
Q

The rate of return that the project earns

A

Internal Rate of Return (IRR)

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7
Q

A graph showing how a projects NPV changes as the discount rate changes

A

Net Present Value Profile

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8
Q

The discount rate that equates the present value of the project’s future free cash flows with the terminal value of the cash inflows

A

Modified Internal Rate of Return (MIRR)

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9
Q

Placing a limit on the dollar size of the capital budget

A

Capital Rationing

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