FNCE chapter 9 - Capital budgeting

Question 1

capital budgeting

Answer 1

the process of planning and evaluating expenditures on assets whose cash flows are expected to extend beyond one year

Question 2

replacement decisions

Answer 2

whether to purchase capital assets to take the place of existing assets primarily to maintain existing operations

Question 3

expansion decisions

Answer 3

whether to purchase additional capital projects to increase existing operations

Question 4

independent projects

Answer 4

projects whose cash flows are not affected by decisions made about other projects

Question 5

mutually exclusive projects

Answer 5

a set of projects where the acceptance of one project means the others cannot be accepted

Question 6

discounted payback period (DPP)

Answer 6

traditional payback period doesn’t consider the time value of money

Question 7

net present value (NPV)

Answer 7

the present value of an asset’s future cash flows minus its purchase price

Question 8

internal rate of return (IRR)

Answer 8

the discount rate that forces the PV of a projects cash flows equal its initial cost