acceptance-or-rejection decision | A decision as to whether or not a particular capital investment proposal should be accepted.
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accounting rate of return | A percentage formed by taking a project's average incremental revenue minus its average incremental expenses (including depreciation and income taxes) and dividing by the project's initial investment.
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after-tax cash flow | The cash flow expected after all tax implications have been taken into account.
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capital-budgeting decision | A decision involving cash flows beyond the current year.
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capital-rationing decision | A decision in which management chooses which of several investment proposals to accept to make the best use of limited investment funds.
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depreciation tax shield | The reduction in a firm's income-tax expense due to the depreciation expense associated with a depreciable asset.
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discounted-cash-flow analysis | An analysis of an investment proposal that takes into account the time value of money.
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hurdle rate | The minimum desired rate of return used in a discounted- cash-flow analysis.
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internal rate of return | The discount rate required for an investment's net present value to be zero; also known as the time-adjusted rate of return.
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investment opportunity rate | The rate of return an organization can earn on its best alternative investments that are of equivalent risk.
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Modified Accelerated Cost Recovery System (MACRS) | The depreciation schedule specified by the United States tax code, as modified by recent changes in the tax laws.
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net present value | The present value of a project's future cash flows less the cost of the initial investment.
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nominal dollars | The measure used for an actual cash flow that is observed.
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nominal interest rate | The real interest rate plus an additional premium to compensate investors for inflation.
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payback period | The amount of time required for a project's after-tax cash inflows to accumulate to an amount that covers the initial investment.
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post-audit (or reappraisal) | A systematic follow-up of a capital-budgeting decision to see how the project turned out.
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profitability index (or excess present value index) | The present value of a project's future cash flows (exclusive of the initial investment), divided by the initial investment.
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real dollars | A measure that reflects an adjustment for the purchasing power of a monetary unit.
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real interest rate | The underlying interest rate in the economy, which includes compensation to an investor for the time value of money and the risk of an investment.
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working capital | Current assets minus current liabilities.
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