Term
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Definition
| assets, such as accounts receivable and inventories, that are expected to be liquidated (collected or sold) within one year |
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Term
| Equivalent annual cost (EAC) |
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Definition
| the annual dollar amount of an annuity that has a life equal to that of a project and that also has a present value equal to the present value of the cash flows from the project; the term comes from the fact that the EAC calculation is often used to calculate a constant annual cost associated with projects in order to make comparisons |
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Term
| Firm's marginal tax rate (t) |
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Definition
the tax rate that is applied to each additional dollar of earnings at a firm
fixed costs costs that do not vary directly with the number of units sold |
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Term
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Definition
| costs that do not vary directly with the number of units sold |
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Term
| Incremental additions to working capital (Add WC) |
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Definition
| the investments in working capital items, such as accounts receivable, inventory, and accounts payable, that must be made if the project is pursued |
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Term
| Incremental after-tax free cash flows |
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Definition
| the difference between the total after-tax free cash flows at a firm with a project and the total after-tax free cash flows at the same firm without that project; a measure of a project's total impact on the free cash flows at a firm |
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Term
| Incremental capital expenditures (Cap Exp) |
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Definition
| the investments in property, plant, and equipment and other long-term assets that must be made if a project is pursued |
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Term
| Incremental cash flow from operations (CF Opns) |
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Definition
| the cash flow that a project generates after all operating expenses and taxes have been paid but before any cash outflows for investments |
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Term
| Incremental depreciation and amortization (D&A) |
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Definition
| the depreciation and amortization charges that are associated with a project |
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Term
| Incremental net operating profits after tax (NOPAT) |
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Definition
| a measure of the impact of a project on the firm's cash net income, excluding the effects of any interest expenses associated with financing the project |
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Term
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Definition
| nonphysical assets such as patents, mailing lists, or brand names |
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Term
| Modified Accelerated Cost Recovery System (MACRS) |
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Definition
| the accelerated depreciation method that has been in use for U.S. federal taxes since the Tax Reform Act of 1986 went into effect |
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Term
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Definition
| dollar amounts that are not adjusted for inflation. The purchasing power of a nominal dollar amount depends on when that amount is received |
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Term
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Definition
| a tax system in which the marginal tax rate at low levels of income is lower than the marginal tax rate at high levels of income |
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Term
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Definition
| inflation-adjusted dollars; the actual purchasing power of dollars stated in “real” terms is the same regardless of when those dollars are received |
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Term
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Definition
| the principle that allows us to treat each project as a stand-alone firm when we perform an NPV analysis |
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Term
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Definition
| physical assets such as property, plant, and equipment |
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Term
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Definition
| costs that vary directly with the number of units sold |
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