Ch 21 404 - Chapter 21 Capital Budgeting Cost Analysis...

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Chapter 21: Capital Budgeting & Cost Analysis Accounting rate of return See accrual account rate-of-return (AARR) Accrual accounting rate of return Divides an accrual accounting measure of average annual income of a project by an accrual accounting measure of its investment. Also called accounting rate of return or return on investment (ROI) Capital budgeting The making of long-run planning decisions for investments in projects Cost of capital See required rate of return (RRR) Discount rate See required rate of return (RRR) Discounted cash flow (DCF) methods Capital budgeting methods that measure all expected future cash inflows and outflows of a project as if they occurred at the present point in time. DCF is the best approach to capital budgeting. It explicitly includes all project cash flows and recognizes the time value of money Hurdle rate See required rate of return (RRR) Inflation The decline in the general purchasing power of the monetary unit, such as dollars Internal rate-of-return (IRR) method Capital budgeting discounted cash flow (DCF) method that calculates the
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