finance 341 wwu final exam terms UPDATED ACTUAL Questions And Correct
Answers
Terms in this set (65)
Capital budgeting The process of planning and managing a firm's long-term investments.
Capital rationing The process of limiting the amount of new investments or projects a company can
undertake.
Discounted payback period The time it takes for an investment to generate cash flows sufficient to recover its
initial cost, discounted at the project's cost of capital.
, Equivalent annual annuity (EAA) A method used to compare the value of projects with different lifespans by
converting their net present values into an annualized format.
Internal rate of return (IRR) The discount rate that makes the net present value of an investment zero.
Modified internal rate of return (MIRR) A financial metric that adjusts the internal rate of return to account for the cost of
financing and the reinvestment of cash flows.
Mutually exclusive projects Projects where the acceptance of one project means that others cannot be
accepted.
Net present value (NPV) The difference between the present value of cash inflows and outflows over a
period of time.
Net present value profile A graph that shows the relationship between the net present value of a project
and various discount rates.
Payback period The time it takes for an investment to generate enough cash flows to recover its
initial cost.
Profitability index (PI) A ratio that compares the present value of future cash flows to the initial
investment, used to evaluate the attractiveness of an investment. You accept is PI >
1
Contribution-to-firm risk The risk that a project contributes to the overall risk of the firm.
Initial outlay The initial cash investment required to start a project.
Answers
Terms in this set (65)
Capital budgeting The process of planning and managing a firm's long-term investments.
Capital rationing The process of limiting the amount of new investments or projects a company can
undertake.
Discounted payback period The time it takes for an investment to generate cash flows sufficient to recover its
initial cost, discounted at the project's cost of capital.
, Equivalent annual annuity (EAA) A method used to compare the value of projects with different lifespans by
converting their net present values into an annualized format.
Internal rate of return (IRR) The discount rate that makes the net present value of an investment zero.
Modified internal rate of return (MIRR) A financial metric that adjusts the internal rate of return to account for the cost of
financing and the reinvestment of cash flows.
Mutually exclusive projects Projects where the acceptance of one project means that others cannot be
accepted.
Net present value (NPV) The difference between the present value of cash inflows and outflows over a
period of time.
Net present value profile A graph that shows the relationship between the net present value of a project
and various discount rates.
Payback period The time it takes for an investment to generate enough cash flows to recover its
initial cost.
Profitability index (PI) A ratio that compares the present value of future cash flows to the initial
investment, used to evaluate the attractiveness of an investment. You accept is PI >
1
Contribution-to-firm risk The risk that a project contributes to the overall risk of the firm.
Initial outlay The initial cash investment required to start a project.
