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# Accounting FinalExam

### Chapters 10 & 11

Question | Answer |
---|---|

decentralization | the delegation of freedom to make decisions. The lower in the organization that this freedom exists, the greater the ... |

centralization | The process by which decision making is concentrated within a particular location or group. |

segment autonomy | the delegation of decision making power to managers of segments of an organization. |

performance metric | a specific measure of mgmt accomplishment. |

incentives | performance-based rewards, both formal & informal, that enhance managerial effort toward organizational goals. |

agency theory | a theory that deals with contracting between an organization & the managers that it hires to make decisions on its behalf. |

return on investment (ROI) | a measure of income or profit divided by the investment required to obtain that income or profit. |

return on sales | income divided by revenue. |

capital turnover | revenue divided by invested capital. |

economic profit (residual income) | after-tax operating income less a capital charge. |

capital charge | company's cost of capital x amount of investment. |

cost of capital | what a firm must pay to acquire more capital, whether or not it actually has to immediately acquire more capital. |

economic value added (EVA) | equals adjusted after-tax operating income minus the cost of invested capital multiplied by the adjusted average invested capital. |

gross book value | the original cost of an asset before deducting accumulated depreciation. |

net book value | the original cost of an asset less any accumulated depreciation. |

transfer price | the price that one segment of an organization charges another segment of the same organization for a product or service. |

dysfunctional decision | any decision that is an conflict with organizational goals. |

management by objectives (MBO) | the joint formation by a manager and his or her superior of a set of goals and plans for achieving the goals for a forthcoming period. |

capital budgeting | the long term planning for making and financing investments that affect financial results over a period longer than just the next year. |

discounted cash flow models (DCF) | a type of capital budgeting model that focuses on cash inflows and outflows while taking into account the time value of money. |

net present value method (NPV) | a discounted cash flow approach to capital budgeting that computes the present value of all expected future cash flows using a minimum desired rate of return. |

required/hurdle/discount rate of return | the minimum desired rate of return, based on the firm's cost of capital. |

net present value | the sum of the present values of all expected cash flows. |

internal rate of return model (IRR) | a capital budgeting model that determines the interest rate at which the NPV equals zero. |

real options model | a capital budgeting model that recognizes the value of contingent investments. |

total project approach | a method for comparing alternatives that computes the total impact on cash flows for each alternative and then converts these total cash flows to their present values. |

differential approach | a method for comparing alternatives that computes the differences in cash flows between alternatives and then converts these differences in cash flows to their present values. |

marginal income tax rate | the tax rate paid on additional amounts of pretax income. |

accelerated depreciation | a pattern of depreciation that charges a larger proportion of an asset's cost to the earlier years & less to later years. |

recovery period | the number of years over which a company can depreciate an asset for tax purposes. |

MACRS | the method companies use to depreciate most assets under US income tax laws. |

payback time/period | the time it will take to recoup, in the form of cash inflows from operations, the initial dollars invested in a project. |

accounting/unadjusted rate of return model (ARR) | a non-DCF capital budgeting model expressed as the increase in expected average annual operating income divided by the initial required investment. |

postaudit | a follow up evaluation of capital budgeting decisions. |

inflation | the decline in the general purchasing power of the monetary unit. |

nominal rate | quoted market interest rate the includes an inflation element. |

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freisak