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Presented Below Are Terms Preceded by Letters a Through F

Question 130

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 additional cost incurred only if a particular action is taken.

Out-of-pocket cost

The potential benefits of one alternative that are lost by choosing an alternative course of action.

Opportunity cost

A cost that cannot be avoided or changed in any way because it arises from past decision; irrelevant to current and future decisions.

Sunk cost

A cost that requires a current outlay of cash.

Accounting rate of return

An estimate of an asset's value to the company; calculated by discounting the future cash flows from the investment at a satisfactory rate and then subtracting the initial cost of the investment.

Incremental cost

A rate used to evaluate the acceptability of an investment; equals the after-tax periodic income divided by the average investment in the asset.

Net present value

Premises:

An additional cost incurred only if a particular action is taken.

The potential benefits of one alternative that are lost by choosing an alternative course of action.

A cost that cannot be avoided or changed in any way because it arises from past decision; irrelevant to current and future decisions.

A cost that requires a current outlay of cash.

An estimate of an asset's value to the company; calculated by discounting the future cash flows from the investment at a satisfactory rate and then subtracting the initial cost of the investment.

A rate used to evaluate the acceptability of an investment; equals the after-tax periodic income divided by the average investment in the asset.

Responses:

Out-of-pocket cost

Opportunity cost

Sunk cost

Accounting rate of return

Incremental cost

Net present value

Correct Answer:

Premises:

Responses:

An additional cost incurred only if a particular action is taken.

The potential benefits of one alternative that are lost by choosing an alternative course of action.

A cost that cannot be avoided or changed in any way because it arises from past decision; irrelevant to current and future decisions.

A cost that requires a current outlay of cash.

An estimate of an asset's value to the company; calculated by discounting the future cash flows from the investment at a satisfactory rate and then subtracting the initial cost of the investment.

A rate used to evaluate the acceptability of an investment; equals the after-tax periodic income divided by the average investment in the asset.

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