Glossary – Chapter 24

• accounting rate of returnA project evaluation tool that focuses on accounting income rather than cash flows; average annual increase in income by the amount of initial investment.
• annuity
  Level streams of payments; with each payment being the same, and occurring at a regular interval
• annuity dueAlso known as an annuity in advance; involves a level stream of payments, with the payments being made at the beginning of each time period
• capital expenditure decisionAlso known as capital budgeting; planning and decision making related to longer term projects and expenditures
• future valueOr "compound interest;" amount that a current payment (or stream of payments) will grow in time; includes interest on previous interest based on frequency of compounding
• internal rate of returnAlso known as time-adjusted rate of return or IRR; discount rate causing present value of cash inflows to equal present value of the cash outflows
• net present valueOr NPV, a method of evaluating capital projects that uses a predetermined interest rate to determine the present value of an investment's net cash inflows and outflows
• opportunity costThe cost of a foregone alternative; may include lost revenue
• ordinary annuityAlso known as an annuity in arrears; involves a level stream of payments, with the payments being made at the end of each time period
• outsourcingUtilization of independent parties to manufacture products (sometimes known as make-or-buy) or manage data processing, tech support, payroll services, etc.
• payback methodEasy method for evaluating capital projects; calculated by dividing the initial investment by the annual cash inflow
• present valueAlso known as discounting; determines the current worth of cash to be received in the future
• relevant costItems where future costs and revenues are expected to differ for the alternative decisions under consideration
• special orderA customer order that is outside of the normal pricing and terms
• sunk costHistorical amount expended on a project or object; not relevant to current decisions or future actions
• time value of moneyConceptual notion holding that money to be received sooner is worth more than money to be received later   From Chapter 24: In the context of capital budgeting, assume two alternative investments have the same upfront cost. Investment Alpha returns $100 per year for each of the next 5(...)