Capital Budgeting (Corporate Finance Lecture 1)

Flashcards created for key concepts in Capital Budgeting and Investment Criteria.

According to the NPV rule, projects with __ should be accepted.

positive NPV.

The Payback period is the number of years it takes before the cumulative forecasted cash flow equals the __.

initial outlay.

The formula for ARR is __ divided by average book value over the project life.

average income.

The IRR Rule states that you should invest in any project that offers a rate of return __ the opportunity cost of capital.

higher than.

Cash flows must be discounted, not __, when forecasting a project's cash flows.

profits.

To forecast cash flows accurately, remember to subtract cash __ when estimating cash flows.

outflows for taxes.

When resources are limited, the __ provides a tool for selecting among projects.

profitability index (PI).

The __ assumption implies that all funds are reinvested at the IRR.

term structure.

The investment timing decision involves examining start dates and calculating __ for each date.

net future value.

The equivalent annual cash flow represents the cash flow per period with the same __ as the actual cash flow of the project.

present value.