M11-1

Matching Key Terms and Concepts to Definitions

A number of terms and concepts from this chapter and a list of descriptions, definitions, and explanations appear as follows. For each term listed (1 through 9), choose at least one corresponding item (a through k). Note that a single term may have more than one description and a single description may be used more than once or not at all.

_____ 1. Time value of money _____ 2. Profitability index _____ 3. Payback period _____ 4. Net present value method _____ 5. Future value _____ 6. Preference decision _____ 7. Internal rate of return method _____ 8. Screening decision _____ 9. Accounting rate of return

Page 497 Discounted cash flow method of capital budgeting. Estimate of the average annual return on investment that a project will generate. Capital budgeting method that identifies the discount rate that generates a zero net present value. Decision that requires managers to evaluate potential capital investments to determine whether they meet a minimum criterion. Only capital budgeting method based on net income instead of cash flow. Ratio of the present value of future cash flows to the initial investment. Value that a cash flow that happens today will be worth at some point in the future. Concept recognizing that cash received today is more valuable than cash received in the future. Decision that requires a manager to choose from a set of alternatives. How long it will take for a particular capital investment to pay for itself. Capital budgeting technique that compares the present value of the future cash flows for a project to its original investment.