Stephen A. Ross,
Massachusetts Institute of Technology
Randolph W. Westerfield,
University of Southern California
Bradford D. Jordan,
University of Kentucky
Gordon S. Roberts,
York University
| Average Accounting Return (AAR) | An investment's average net income divided by its average book value.
(See Refer to page 273)
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| Benefit/Cost Ratio | The profitability index of an investment project.
(See Refer to page 284)
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| Discounted Cash Flow (DCF) Valuation | The process of valuing an investment by discounting its future cash flows.
(See Refer to page 266)
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| Discounted Payback Period | The length of time required for an investment's discounted cash flows to equal its initial cost.
(See Refer to page 272)
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| Internal Rate of Return (IRR) | The discount rate that makes the NPV of an investment zero.
(See Refer to page 275)
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| Multiple Rates of Return | One potential problem in using the IRR method if more than one discount rate makes the NPV of an investment zero.
(See Refer to page 280)
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| Mutually Exclusive Investment Decisions | One potential problem in using the IRR method if the acceptance of one project excludes that of another.
(See Refer to page 281)
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| Net Present Value (NPV) | The difference between an investment's market value and its cost.
(See Refer to page 265)
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| Net Present Value Profile | A graphical representation of the relationship between an investment's NPVs and various discount rates.
(See Refer to page 277)
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| Payback Period | The amount of time required for an investment to generate cash flows to recover its initial cost.
(See Refer to page 269)
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| Profitability Index (PI) | The present value of an investment's future cash flows divided by its initial cost. Also benefit/cost ratio.
(See Refer to page 284)
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2002 McGraw-Hill Higher Education