Chapter 10 Flashcards
The process of decision making with respect to investments made in fixed assets, that is should a project be accepted or rejected
Capital Budgeting
The number of years it takes to recapture a project’s initial outlay
Payback Period
The number of years it takes to recapture a project’s initial outlay from the discounted free cash flows
Discounted Payback Period
The present value of an investment’s annual free cash flows less the investment’s initial outlay
Net Present Value (NPV)
The ratio of the present value of an investment’s future free cash flows to the investment’s initial outlay
Probability Index (PI)
The rate of return that the project earns
Internal Rate of Return (IRR)
A graph showing how a projects NPV changes as the discount rate changes
Net Present Value Profile
The discount rate that equates the present value of the project’s future free cash flows with the terminal value of the cash inflows
Modified Internal Rate of Return (MIRR)
Placing a limit on the dollar size of the capital budget
Capital Rationing