Cash flow - value equal to income after taxes plus noncash expenses. In capital budgeting decisions, the usual noncash expense is depr.
Payback - value that indicates the time period required to recoup an initial investment but doesnt include time value of money concept
NPV - NPV equals the pv of cash inflows minus the pv of the cash outflows w/ the cost of capital used as disc. rate
IRR - discounted cash flow method for evaluating capital budgeting projects. The IRR is a disc. Rate that makes the PV of vash inflows = PV of cash outflows.
Mutually exclusive - selection of one choice precludes the selection of any other competitive choice. If one is selected, others wont be used.
Modified inernal rate of return - method of evaluation combining the reinvestment rate assumption of the nvp method w the irr method
Capital rationing - occurs when corp. Has more dollars of capital budgeting projects w/ positive net present values than it has money to invest in them.
NPV Profile - potential net present values of a project at different disc. Rates
modified accelerated cost revoery system - a system that specifies the allowable depr. Recovery period for different types of assets. Normal recovery period is shorter than the physical life of asset.
Asset depreciation range - represents the expected physical life of an asset. Midpoint of the ADR is utilized to determine what class an asset falls into for depr. Purposes.
replacement decisions - capital budgeting decision on whether to replace an old asset wuth a new one. Advance in tech is involved
Incremental depreciation - Depr. On a new asset minus the depr. Of an old asset. Incremental depr. Is multiplied times the tax rate to determine tax shield.
Elective expensing - writing off an asset in the yr of purchase for tax purposes rather than it depr. Over the life of the assete. Beneficial to small over large businesses