| A | B |
|---|
| capital project | construction or purchase of a long-term asset, such as buildings and equipment. |
| centralized organization | organization in which business decisions are made at company headquarters |
| complementary projects | two or more projects that are dependent on one another. |
| cost of capital | the interest rate used to evaluate a capital project. |
| cost of debt | the rate of return required by creditors. |
| cost of equity | the required return of the owners in a company. |
| decentralized orgaization | organization in which business decisions are made at lower levels rather than at company headquarters. |
| diversification | the offering of a variety of products or service; also, investing in a variety of assets. |
| horizontal integration | a merger between two or more copmanies in the same type of business. |
| intellectual property | intangible assets used by companies. |
| internal rate of return (IRR) | the discount rate at which the net present value is zero. |
| joint venture | an agreement between two or more companies to share a business project. |
| mutually exclusive projects | the acceptance of one project does not allow acceptance of others. |
| net present value (NPV) | the present value of cash flows for a project minus the initial investment. |
| optimal capital structure | the financing combination of a low cost of capital and maximum market value. |
| payback method | used to determine how long it will take for the cash flows of a capital project to equal the original costs. |
| sunk cost | expenses that have been incurred and cannot be recovered. |
| vertical integration | expansion through increased involvement in different stages of production and distribution. |
| weighted average cost of capital | calculated by multiplying the proportions of debt and equity by the capital cost for each. |
