Chapter 11 Managerial Accounting

Accelerated Depreciation-a pattern of depreciation that charges a larger proportion of an asset’s cost to the earlier years and less to later years.

Accounting Rate-Of- Return Model-A non-DCF capital-budgeting model expressed as the increase in expected average annual operation income divided by the initial required investment.

Capital Budgeting-the long-term planning for making and financing investments that affect financial results over more than just the next year.

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.

Required Rate of Return (Hurdle Rate, Discount Rate)-the minimum desired rate of return, based on the firm’s cost of capital.

Discounted-Cash-Flow Models-a type of capital-budgeting model that focuses on cash inflows and outflows while taking into account the time value of money.

Inflation-the decline in the general purchasing power of the monetary unit.

Marginal Income Tax Rate-the tax rate paid on additional amounts of pretax income.

Net-Present-Value Method-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.

Nominal Rate-quoted market interest rate that includes an inflation element.

Payback Period (Payback Time)-the time it will take to recoup, in the form of cash inflows from operations, the initial dollars invested in a project.

Postaudit-a follow-up evaluation of capital budgeting decisions.

Recovery Period-the number of years over which an asset is depreciated for tax purposes.

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.