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Capital budgeting, the Glossary

Capital budgeting in corporate finance, corporate planning and accounting is an area of capital management that concerns the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development projects are worth the funding of cash through the firm's capitalization structures (debt, equity or retained earnings).^[1]

Accounting rate of return

The accounting rate of return, also known as average rate of return, or ARR, is a financial ratio used in capital budgeting.

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Aswath Damodaran

Aswath Damodaran (born 24 September 1957), is a Professor of Finance at the Stern School of Business at New York University (Kerschner Family Chair in Finance Education), where he teaches corporate finance and equity valuation.

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Average accounting return

The average accounting return (AAR) is the average project earnings after taxes and depreciation, divided by the average book value of the investment during its life.

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Budget

A budget is a calculation plan, usually but not always financial, for a defined period, often one year or a month. Capital budgeting and budget are budgets.

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Capital (economics)

In economics, capital goods or capital are "those durable produced goods that are in turn used as productive inputs for further production" of goods and services. Capital budgeting and capital (economics) are investment.

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Capital management

Capital management refers to the area of financial management that deals with capital assets, which are assets that have value as a function of economic production, or otherwise are of utility to other economic assets.

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Corporate bond

A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, mergers & acquisitions, or to expand business.

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Corporate finance

Corporate finance is the area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources.

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Cost of capital

In economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or from an investor's point of view is "the required rate of return on a portfolio company's existing securities".

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Cost of goods sold

Cost of goods sold (COGS) is the carrying value of goods sold during a particular period.

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Debt capital

Debt capital is the capital that a business raises by taking out a loan.

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Discounted cash flow

The discounted cash flow (DCF) analysis, in financial analysis, is a method used to value a security, project, company, or asset, that incorporates the time value of money. Capital budgeting and discounted cash flow are corporate finance.

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Engineering economics

Engineering economics, previously known as engineering economy, is a subset of economics concerned with the use and "...application of economic principles"Dharmaraj, E..

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Engineering economics (civil engineering)

The study of Engineering Economics in Civil Engineering, also known generally as engineering economics, or alternatively engineering economy, is a subset of economics, more specifically, microeconomics. Capital budgeting and engineering economics (civil engineering) are budgets, business planning and investment.

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Equity (finance)

In finance, equity is an ownership interest in property that may be offset by debts or other liabilities.

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Equivalent annual cost

In finance, the equivalent annual cost (EAC) is the cost per year of owning and operating an asset over its entire lifespan. Capital budgeting and equivalent annual cost are corporate finance.

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Fixed investment

Fixed investment in economics is the purchasing of newly produced fixed capital.

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Inflation

In economics, inflation is a general increase in the prices of goods and services in an economy.

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Interest rate

An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum).

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Internal rate of return

Internal rate of return (IRR) is a method of calculating an investment's rate of return. Capital budgeting and Internal rate of return are corporate finance and investment.

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International Federation of Accountants

The International Federation of Accountants (IFAC) is the global organization for the accountancy profession.

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Modified internal rate of return

The modified internal rate of return (MIRR) is a financial measure of an investment's attractiveness. Capital budgeting and modified internal rate of return are investment.

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Net present value

The net present value (NPV) or net present worth (NPW) is a way of measuring the value of an asset that has cashflow by adding up the present value of all the future cash flows that asset will generate. Capital budgeting and net present value are investment.

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New York University

New York University (NYU) is a private research university in New York City, United States.

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New York University Stern School of Business

The Leonard N. Stern School of Business (also NYU Stern, Stern School of Business, or simply Stern) is the business school of New York University, a private research university based in New York City.

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Nominal interest rate

In finance and economics, the nominal interest rate or nominal rate of interest is the rate of interest stated on a loan or investment, without any adjustments for inflation.

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Operating budget

The operating budget contains the revenue and expenditure generated from the daily business functions of the company. Capital budgeting and operating budget are budgets.

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Payback period

Payback period in capital budgeting refers to the time required to recoup the funds expended in an investment, or to reach the break-even point. Capital budgeting and Payback period are corporate finance and investment.

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Profitability index

Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project.

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Real interest rate

The real interest rate is the rate of interest an investor, saver or lender receives (or expects to receive) after allowing for inflation.

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Real options valuation

Real options valuation, also often termed real options analysis,Adam Borison (Stanford University). Capital budgeting and real options valuation are corporate finance.

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Retained earnings

The retained earnings (also known as plowback) of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period. Capital budgeting and retained earnings are corporate finance.

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Return on investment

Return on investment (ROI) or return on costs (ROC) is the ratio between net income (over a period) and investment (costs resulting from an investment of some resources at a point in time). Capital budgeting and return on investment are investment.

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A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived by the issue of shares in the corporation to a shareholder, usually for cash.

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References

[1] https://en.wikipedia.org/wiki/Capital_budgeting

Also known as Capital Budget, Capital planning.

Capital budgeting, the Glossary

Table of Contents

See also

Budgets

Business planning

References