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Finance_9
Capital Budgeting Techniques and Practice
Question | Answer |
---|---|
The process of decision making with respect to investments made in fixed assets that is, should a proposed project be accepted or rejected. | Capital Budgeting |
The number of years it takes to recapture a project's initial outlay. | Payback Period |
The present value of an investment;s annual free cash flows less the investment;s initial outlay. | Net Present Value |
The ratio of the present value of an investment's future cash flows to the investment;s initial outlay. | Profitability Index |
The rate of return that the project earns. | Internal Rate of Return |
Placing a limit on the dollar size of the capital budget. | Capital Rationing |
Projects that if undertaken, would serve the same purpose. thus accepting one will necessarily mean rejecting the others. | Mutually Exclusive |
Occurs when mutually exclusive projects of unequal size are examined. | Size Disparity |
Time Disparity | |
Unequal Lives | |
An annuity cash flow that yields the same present value as the project's NPV. | Equivalent Annual Annuity |