capital investments and capital allocation

Going Concern Project

A project required to maintain existing operations and business capacity.

Regulatory Project

A project undertaken to comply with legal or regulatory requirements.

Expansion Project

A project aimed at increasing a company’s growth and market presence.

High-Risk Project

A project outside the core business with potentially high risk and return.

Net Present Value (NPV)

The difference between the present value of cash inflows and the initial investment.

Internal Rate of Return (IRR)

The discount rate that makes the net present value equal to zero.

Independent Projects

Projects whose acceptance does not affect other projects.

Mutually Exclusive Projects

Projects where only one can be selected among alternatives.

Return on Invested Capital (ROIC)

A measure of profitability calculated as after-tax operating profit divided by total invested capital.

Incremental Cash Flow

The additional cash flow generated by a project.

Sunk Cost

A cost that has already been incurred and should not be considered in decision-making.

Cannibalization

A situation where a new project reduces the sales of existing products.

Rollover Risk

The risk that short-term financing cannot be renewed at maturity.

Real Options

The flexibility to make future decisions that affect a project’s value.

Timing Option

The option to delay a project until more information is available.

Flexibility Option

The ability to adjust operations after investment.