Cost Accounting--Ch. 21
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16 terms
Terms | Definitions |
|---|---|
 Accounting Rate of Return | Another term for accrual accounting rate of return (AARR) |
| Accrual Accounting Rate of Return | Divides an accrual accounting measure of average annual income of a project by an accrual accounting measure of its investment. |
| Capital Budgeting | The making of long-run planning decisions for investments in projects |
| Cost of Capital | Another term for required rate of return. Cost of capital |
| Discount Rate | Another term for required rate of return. Discount rate |
| Discounted Cash Flow (DCF) Methods | Capital budgeting methods that measure all expected future cash inflows and outflows of a project as if they occurred at a single point in time. |
| Hurdle Rate | Another term for required rate of return. Hurdle rate |
| Inflation | The decline in the general purchasing power of the monetary unit, such as dollars. |
| Internal Rate of Return (IRR) Method | Capital budgeting discounted cash flow (DCF) method that calculates the discount rate at which the present value of expected cash inflows from a projects equals the present value of its expected cash outflows. |
| Net Present Value (NPV) Method | Capital budgeting discounted cash flow (DCF) method the calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time, using the required rate of return. |
| Nominal Rate of Return | Made up of three elements: a.) the risk-free element when there is no expected inflation, b.) a business-risk element, and c.) an inflation element. |
| Opportunity Cost of Capital | Another term for required rate of return. Opportunity cost of capital |
| Payback Method | Capital budgeting method that measures the time it will take to recoup, in the form of expected future cash flows, the net initial investment in the project. |
| Real Rate of Return | The rate of return demanded to cover investment risk (with no inflation). It has a risk-free element and a business-risk element. |
| Required Rate of Return (RRR) | The minimum acceptable annual rate of return on an investment. |
| Time Value of Money | Takes into account that a dollar (or any other monetary unit) received today is worth more than a dollar received in any future time. |
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