Card Set Information

2014-03-06 00:50:02

Show Answers:

  1. Capital investment decision
    Decisions involving high-dollar investments expected to achieve long-term benefits for an organization
  2. Strategic Decision
    Capital investment decision designed to increase a health care organization's strategic (long-term) position
  3. Expansion decision
    Capital investment decision designed to increase the operational capability of a health care organization
  4. Replacement decision
    Capital investment decisions designed to replace older assets with newer, cost-saving ones
  5. Retrained Earnings
    The portion of profits that an organization keeps for itself in-house to use in growth and support of its mission
  6. Capital Appreciation
    Occurs whenever an asset is worth more when sold than when purchased. Common examples would be land, property, or stocks
  7. Payback method
    To evaluate the feasibility of an investment by determining how long it would take until the initial investment is recovered, disregarding the time value of money
  8. Net Present Value (NPV)
    Difference between the initial amount paid for an investment and the future cash inflows that the investment brings in, adjusted for the cost of capital
  9. Discounted cash flows
    Cash flows that have been adjusted to account for the cost of capital
  10. Cost of Capital
    The rate of return required to undertake a project; the cost of capital accounts for both the time value of money and risk; also called the hurdle rate or discount rate
  11. Salvage Value
    The amount of cash to be received when an asset (equipment) is sold, usually at the end of its useful life; also called terminal value, residual value, and scrap value
  12. Goodwill
    An amount paid above and beyond the book value of an asset (typically a business) when it is sold, representing the value of intangible factors such as brand reputation, customer or supplier relationships, employee competencies, and the like
  13. Internal Rate of Return (IRR)
    That rate of return on an investment that makes the net present value equal to $0, after all cash flows have been discounted at the same rate. ALSO: the discount rate at which the discounted cash flows over the life of the project exactly equal the initial investment
  14. Required rate of return
    An organization's minimally acceptable internal rate of return on any investment to justify an initial investment. Also called cost of capital or hurdle rate
  15. Straight-line Depreciation
    A method that depreciates an asset an equal amount each year until it reaches its salvage value at the end of its useful life
  16. Capital investments
    Expected to achieve long-term benefits for the organization that generally fall into three categories: nonfinancial benefits, financial returns, and the ability to attract more funds in the future
  17. Dividends
    Represent the portion of profit that an organization distributes to equity investors
  18. Interest
    Is a payment to creditors, those who have loaned the organization funds or otherwise extended credit
  19. Internal Rate of Return method
    Depends on whether the cash flows are equal or unequal
  20. Incremental differences
    Brought about by replacing an asset.
  21. NPV Method
    Accounts for cash flows after payback and discounting these cash flows by the project's cost of capital
  22. Cannibalization
    Occurs when a new service decreases the revenues from other established services or product lines; these are considered cash outflows
  23. Incremental cash flows
    Cash flows that occur solely as a result of a particular action such as undertaking a project
  24. Nonregular cash flows
    Cash flows that occur sporadically or on an irregular basis. A common nonregular cash flow is salvage value, receipt of funds following a one-time sale of an asset at the end of its useful life
  25. Opportunity cost
    Proceeds lose by forgoing other opportunities
  26. Operating cash flows
    Cash flows that occur on a regular basis, oftentimes following implementation of a project
  27. Sunk costs
    Costs incurred in the past. They should not be included in NPV-type analyses