Chapter 12 - Vocab Flashcards
is a process used for analysis and selection of the long-term investments of a business.
Capital budgeting
A company’s ______ is often calculated as the weighted average cost of its debt and equity financing.
Cost of capital
A ____ occurs if the proceeds from the sale of an asset exceed its book value at the date of disposal.
Gain on disposal
arises because an employee acts in his or her own best interests even if that action is not in the company’s best interest.
Goal incongruence
The cost of capital is also commonly referred to as
Hurdle Rate
A___ occurs if the proceeds from the sale of an asset are less than its book value at the date of disposal.
Loss on disposal
is a method of evaluating investments that uses the time value of money to access whether the investment’s expected rate of return is greater than the company’s cost of capital.
Net present value analysis
is the proportion of fixed costs associated with a project.
Operating leverage
is a capital budgeting technique that estimates the length of time it will take a company to recoup its investment in a project.
Payback method
The profit before interest and taxes divided by the asset investment is
Return on investment
Depreciation provides a ____because it reduces the potential amount of a company’s tax liability by reducing its taxable income without affecting pretax cash flows.
Tax shield
