Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 6

Following are a number of key terms and concepts introduced in the chapter, along with a list of corresponding definitions. Match the appropriate letter for the key term or concept to each definition provided (items 1–15). Note that not all key terms and concepts will be used.

a. Differential cost	j. Present value
b. Allocated cost	k. Cost of capital
c. Sunk cost	l. Net present value (NPV)
d. Opportunity cost	m. Internal rate of return (IRR)
e. Relevant cost	n. Payback method
f. Full capacity	o. Accounting rate of return
g. Idle capacity	p. Profitability index
h. Capital budgeting	q. Postaudit
i. Cash flow	r. Outsourcing

_______The ratio of the present value of cash flows to the investment; used to rank proposed capital expenditures by profitability.