## 16 terms

### 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.

### 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.

### 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.

### 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.