MANAGERIAL ACCOUNTING – 12th Edition

CH 14 TERMS

Capital budgeting – The process of planning significant investments in projects that have long term implications such as the purchase of new equipment or the introduction of a new product.

Cost of capital – The average rate of return a company must pay to its long term creditors and shareholders for the use of their funds.

International rate of return – The discount rate at which the net present value of an investment project is zero; the rate of return promised by a project over its useful life.

Net present value – The difference between the present value of an investment project’s cash inflows and the present value of its cash outflows.

Out-of-pocket costs – Actual cost outlays for salaries, advertising, repairs, and similar costs.

Payback period – The length of time that it takes for a project to fully recover its initial cost out of the cash receipts that it generates.

Post audit – The follow-up after a project has been approved and implemented to determine whether expected results are actually realized.

Preference decision – A decision in which alternatives must be ranked.

Project profitability index – The ratio of the net present value of a project’s cash flows to the investment required.

Screening decision –A decision as to whether a proposed investment project is acceptable.

Simple rate of return –The rate of return computed by dividing a project’s annual incremental accounting net operating income by the initial investment required.

Working capital – Current assets less current liabilities.