1. Capital budgeting techniques are used to evaluate a firm's long term investments which provide the basis for the firm's earning power and value.

2. Discounting refers to getting the present value of the expected cash flows.

3. In capital budgeting the incremental before tax cash flow is used.

4. The cost of capital is the cost of previously raised long term funds.

5. The target capital structure is the desired optimal mix of debt and equity financing that most firms attempt to achieve and maintain.

6. The cost of capital is a static concept and it is not affected by economic and firm-specific factors such as business risk and financial risk.

7. The purchase of additional inventory, is an example of a capital expenditure.

8. Independent projects are projects that compete with one another for a firm's resources, so that the acceptance of one eliminates the others from further consideration.

9. Mutually exclusive projects are projects whose cash flows are unrelated to one another; the acceptance of one does not eliminate the others from further consideration.

10. If a firm is subject to capital rationing, it is able to accept all independent projects that provide an acceptable return.

11. An annuity is when the expected cash inflows are equal through the life of a project.

12. Payback period is a measure of the riskiness of the projected cash flows of a project under study.