Matching Key Terms and Concepts to Definitions
A number of terms and concepts from this chapter and a list of descriptions, definitions, and explanations follow. For each term listed on the left, choose at least one corresponding item from the right. Note that a single term may have more than one description and a single description may be used more than once or not at all.
1. | Time value of money | a. | Discounting method of capital budgeting. |
2. | Profitability index | b. | Estimate of the average annual return on investment that a project will generate. |
3. | Payback period | c. | Capital budgeting method that identifies the discount rate that generates a zero net present value. |
4. | Net present value method | d. | Decision that requires managers to evaluate potential capital investments to determine they meet a minimum criterion. |
5. | Future value | e. | Only capital budgeting method based on accounting income instead of cash flow. |
6. | Preference decision | f. | Ratio of the present value of future cash flows divided by the initial investment. |
7. | Internal rate of return method | g. | Value of a cash flow that happens today will be worth at some point in the future. |
8. | Screening decision | h. | Concept recognizing that cash received today is more valuable than cash received in the future. |
9. | Accounting rate of return | i. | Decision that requires a manager to choose from a set of alternatives. |
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| j. | How long it will take for a particular capital investment to pay for itself. |
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| k. | Capital budgeting technique that compares the present value of the future cash flows for a project to its original investment. |
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