Term

Definition
when future returns are in the form of interest plus repayment of the principal. 


Term

Definition
Representation of future earnings, along with the capital expenditures and annual expenses. 


Term

Definition
Screens projects on the basis of how long it takes for net receipts to equal investment > Payback period determined by adding the expected cash flows for each year until the sum is equal to, or greater than zero 


Term
Conventional payback method 

Definition
Ignoring time value of money in determining payback period 


Term
Discounted payback period 

Definition
Including the time value of money in determining payback period 


Term
Flaws of payback screening 

Definition
 Fails to measure profitability
 Fails to recognize the difference between the present and future value of money (i.e. if PROJECT A had a first period earning of $1000 and second period earning of $3000 vs PROJECT B whose earning in period one was $3000 and $1000 in period 2. Project B would be the better choice because of the concept of time value of money; however payback screening does not account for this)



Term
NetPresentWorth Criterion 

Definition
1) Determine Interest Rate (MARR or Minimum attractive rate of return or required rate of return)
2) Estimate Service Life of Project
3) Estimate Cash INFLOW for each period over the service life
4) Estimate Cash OUTFLOW for each period over the service life
5) Determine the net cash flows for each period (net cash flow=cash inflow  cash outflow)
6) Find the present worth of each net cash flow at the MARR. Add up tehse presentworth figures; their sum is defined as the projects NPW 


Term

Definition
Remainder of balance due once revenues are used to pay off principle and interest (in the case of a bank loan) 


Term

Definition
Terminal balance at the end of the project life 


Term
Capitalization of project with perpetual planning horizon 

Definition


Term
Sample CapitalizedEquivalent Cost Problem
A) If $30,000 is deposited into an account today in order to accomadate maintenance costs at a sports complex, which amount to $3,500 a year (estimated), what interest rate is needed annually inorder for $30,000 to be sufficient at an infinite time down the road? 

Definition
PW(i) = A/i
$30,000 = $3,500/i
30,000/3500 = i
i = 11.6%



Term

Definition
Turbine plant vs Fuel Cell Plant  cost difference is in the initial purchase or investment. Revenue generated from customers is the same. PW in this case would call for the project with the lowest production costs over the life of the project in order to maximize profit. 


Term

Definition
Revenue matters, in this both production and initial cost would be important as well as revenue generated. if PW is used we would select the model that promises to bring the largest net present worth. 


Term

Definition
amount of money for which the equipment could be sold after its service to the project has been rendered, or the dollar measure of tis remaining usefulness 


Term

Definition


Term
Annual equivalent of a capital cost (capital recovery cost) 

Definition
CR(i) = (IS)(A/P, i, n) + is 


Term

Definition
PB(i)n = Pb(i)n1(1+i)+An 


Term

Definition
i = i_{L}+(i_{h}i_{l})*((Value_{h})/(Value_{h}Value_{l})) 

