| A | B |
|---|
| Accounting Rate of Return | The average accounting income a project generates per period divided by the amount of investment in the project. |
| Annuity | An annuity is an investment stream of equal receipts occurring at equal periods. |
| Capital Rationing | The process of allocating a limited capital budget among competing projects in order to get that combination of projects that gives the highest NPV. |
| Discount Rate | The hurdle rate, interest rate, or cost of capital applied to the discount factors used in a discounted cash flow appraisal calculation. |
| Hurdle Rate | The rate of interest in a capital budgeting study that a proposed project must exceed before it can be regarded worthy of consideration. |
| Incremental Cash Flows | Those cash inflows and outflows that are created as a result of a project. |
| Internal Rate of Return | The interest rate or cost of capital that is used to discount a project’s cash inflows and outflows in order to bring the NPV to zero. |
| Net Present Value | The difference between the present value of a project’s expected future cash inflows and the present value of its expected cash outflows. |
| Payback period method | measures the time it takes the investor to recover the amount of a project’s investment. |
| Time Value of Money | The concept, used as the basis for discounted cash flow calculations, that cash received earlier is worth more than a similar sum received later, because the sum received earlier can be invested to earn interest in the intervening period. |
| Residual Value | The market value of a project at the end of its useful life. |
