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10 Cards in this Set
- Front
- Back
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Net Present Value (NPV)
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The difference between a investment's market value and its cost.
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Discounted cash flow (DCF) valuation
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The process of valuing an investment by discounting its future cash flows.
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Payback period
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The amount of time required for an investment to generate cash flows sufficient to recover its initial cost.
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Discounted payback period
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The length of time required for an investment's discounted cash flows to equal its initial cost.
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Average accounting return (AAR)
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An investment's average net income divided by its average book value.
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Internal rate of return (IRR)
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The discount rate that makes the NPV of an investment zero.
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Net present value profile
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A graphical representation of the relationship between an investment's NPVs and various discount rates.
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Multiple rates returns
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The possibility that more than one discount rate will make the NPV of an investment zero.
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Mutually exclusive investment
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A situation in which taking one investment prevents the taking of another.
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Profitability index (PI)
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The present value of an investment's future cash flows divided by its initial cost. Also called the benefit-cost ratio.
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