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Presented Below Are Terms Preceded by Letters a Through F

Question 156

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.

Premises:

Responses:

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.

Postaudit

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

Annuity

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

Capital rationing

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

Profitability index

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.

Net present value

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

Cost of capital

Premises:

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.

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.

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

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

Responses:

Postaudit

Annuity

Capital rationing

Profitability index

Net present value

Cost of capital

Correct Answer:

Premises:

Responses:

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.

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.

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

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

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