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Presented Below Are Terms Preceded by Letters a Through F

Question 160

Matching

Presented below are terms preceded by letters a through f and followed by a list of definitions 1 through 6.Match the letter of the terms with the definitions.Use the space provided preceding each definition.

Premises:

Responses:

An estimate of an asset's value to the company; computed by discounting the future net cash flows using the company's required rate of return and then subtracting the initial amount invested.

Cost of capital

An evaluation of a project's actual results versus its projected results.

Net present value

Finance constraints that limit a company from accepting all positive net present value investments.

Postaudit

An average of the rate the company must pay to its lenders and investors.

Annuity

A series of cash flows of equal dollar amount over equal time periods.

Capital rationing

Used to compare projects when a company cannot fund all positive net present value projects calculated by dividing present value of net cash flows by the initial investment.

Profitability index

Premises:

An estimate of an asset's value to the company; computed by discounting the future net cash flows using the company's required rate of return and then subtracting the initial amount invested.

An evaluation of a project's actual results versus its projected results.

Finance constraints that limit a company from accepting all positive net present value investments.

An average of the rate the company must pay to its lenders and investors.

A series of cash flows of equal dollar amount over equal time periods.

Used to compare projects when a company cannot fund all positive net present value projects calculated by dividing present value of net cash flows by the initial investment.

Responses:

Cost of capital

Net present value

Postaudit

Annuity

Capital rationing

Profitability index

Correct Answer:

Premises:

Responses:

An estimate of an asset's value to the company; computed by discounting the future net cash flows using the company's required rate of return and then subtracting the initial amount invested.

An evaluation of a project's actual results versus its projected results.

Finance constraints that limit a company from accepting all positive net present value investments.

An average of the rate the company must pay to its lenders and investors.

A series of cash flows of equal dollar amount over equal time periods.

Used to compare projects when a company cannot fund all positive net present value projects calculated by dividing present value of net cash flows by the initial investment.

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