Ch 26

A series of equal cash flows at fixed intervals.

A method of evaluating capital investment proposals that focuses on the expected profitability of the investment.

The process by which management plans, evaluates, and controls long-term capital investments involving property, plant, and equipment.

The process by which management plans, evaluates, and controls long-term capital investments involving fixed assets.

The expected period of time that will elapse between the date of a capital expenditure and the complete recovery in cash (or equivalent) of the amount invested.

The rate at which currency in another country can be exchanged for local currency.

A period when prices in general are rising and the purchasing power of money is declining.

A method of analysis of proposed capital investments that uses present value concepts to compute the rate of return from the net cash flows expected from the investment.

A method of analysis of proposed capital investments that focuses on the present value of the cash flows expected from the investments.

Cash to be received (or paid) in the future is not the equivalent of the same amount of money received at an earlier date.

An index computed by dividing the total present value of the net cash flow to be received from a proposed capital investment by the amount to be invested.

The sum of the present values of a series of equal cash flows to be received at fixed intervals.

The concept that an amount of money invested today will earn income.

Avg Rate of Return = Est. Avg Annual Income / Avg Investment

Avg Investment = (Initial Cost + Residual value) / 2

Initial Cost / Annual Net Cash Inflow

Present Value Index = (Total Present Value of Net Cash Flow) / (Amount to be invested)

Present Value Factor for an annuity of $1 = (Amount to be invested) / (Equal annual net cash flows)