(See related pages)
|
|
|
| Accounting rate of return | A rate used to evaluate a potential investment; equals the after-tax periodic income from the project divided by the average investment in the asset; also called return on average investment. (See page(s) 1448) |
| |
| |
| |
| Avoidable expense | An expense (or cost) that is relevant for decision making; an expense that is not incurred if a segment, product, or service is eliminated. (See page(s) 1471) |
| |
| |
| |
| Capital budgeting | The process of analyzing alternative investments and deciding which assets to acquire or sell. (See page(s) 1444) |
| |
| |
| |
| Discounting | The process or restating future cash flows in terms of their present value. (See page(s) 1444) |
| |
| |
| |
| Hurdle rate | A minimum acceptable rate of return; used when interpreting the internal rate of return. (See page(s) 1455) |
| |
| |
| |
| Incremental cost | An additional cost incurred when a company pursues a certain course of action; also called a differential cost. (See page(s) 1465) |
| |
| |
| |
| Internal rate of return (IRR) | The rate that equates the net present value of a project’s cash inflows and outflows to zero. (See page(s) 1454) |
| |
| |
| |
| Net present value | A dollar amount used to evaluate a potential investment; an estimate of an asset’s value to the company, computed by discounting the future cash flows from the investment at a satisfactory rate and then subtracting the initial cost of the investment. (See page(s) 1451) |
| |
| |
| |
| Opportunity cost | The costs that represent the potential benefits lost by choosing an alternative course of action. (See page(s) 1464) |
| |
| |
| |
| Out-of-pocket cost | A cost incurred or avoided as a result of management’s decisions; requires a future outlay of cash. (See page(s) 1464) |
| |
| |
| |
| Payback period | A time-based measure used to evaluate a potential investment; the time expected to pass before the net cash flows from an investment equal its initial cost. (See page(s) 1445) |
| |
| |
| |
| Rate of return on average investment | See accounting rate of return. |
| |
| |
| |
| Relevant benefits | The differential revenue that is generated by selecting a particular course of action over another. (See page(s) 1464) |
| |
| |
| |
| Relevant cost | A future cost that differs between alternatives in a particular business decision; also called an avoidable cost or differential cost. (See page(s) 1463) |
| |
| |
| |
| Segment margin | Contribution margin less traceable or direct fixed costs. (See page(s) 1472) |
| |
| |
| |
| Sunk cost | A cost that cannot be avoided or changed in any way because it arises from a past decision; irrelevant to future decisions. (See page(s) 1464) |
| |
| |
| |
| Unavoidable expense | An expense (or cost) that is not relevant for decision making; an expense that would continue regardless of the decision made. (See page(s) 1471) |