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Capital budgeting: The process of planning significant outlays on projects that have long-term implications,

such as the purchase of new equipment or the introduction of a new product.

Screening decision: A decision as to whether a proposed investment meets some pre-established profitability

hurdle.

Preference decision: A decision as to which of several competing acceptable investment proposals is best.

Net present value: The difference between the present value of the cash inflows and the present value of the

cash outflows associated with an investment project.

Working capital: The excess of current assets over current liabilities.

Cost of capital: The average rate of return companies must pay to long-term creditors and shareholders for the

use of their funds.

Out of pocket costs: Actual cash outlays for operating costs.

Internal rate of return: The discount rate at which the net present value of an investment project is zero.

Required rate of return: The minimum rate of return that an investment project must yield to be acceptable.

Project profitability index: The ratio of the present value of a project's cash inflows to the investment

required.

Post-audit: Following up on a project that has been approved to see if expected results are being realized.

Payback period: The length of time that it takes for a project to recover its initial cost from the net cash

inflows that it generates.

Simple rate of return: The rate of return computed by dividing a project's annual operating income by the

initial investment required.

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