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Definition of Project
An investment opportunity for a company
the purchase, installation, and operation of a capital asset
A project with a negative initial cash flow (cash outflow), which is expected to be
A project whose acceptance or rejection is independent of the acceptance or rejection of
an investment project that has no specific
A situation where an increase (or decrease) in the benefits of one
A project, such as digging holes and filling them up again, that has no useful purpose other than to make work.
a set of proposed capital projects from which one is chosen, causing all the others to be rejected
Two or more projects that cannot be pursued simultaneously.
a set of proposed capital projects that are all related and that must all be chosen if the primary project is chosen
Minimum acceptable expected rate of return on a project given its risk.
Debt finance, usually non-recourse, provided by financial institutions for the development and construction of a new project.
A primary program of Ginnie Mae for securitizing FHA-insured and coinsured
Securities backed by a variety of FHA-insured loan types - primarily multi-family
Usually FHA-insured and HUD-guaranteed mortgages on multiple-family housing complexes,
project notes are issued by municipalities to finance federally sponsored programs in
The future planned balance of an inventory item,
Projected maturity date
With CMOs, final payment at the end of the estimated cash flow window.
Future-oriented financial information prepared using assumptions that reflect the entity's planned courses of action for the period.
total expected value (for a project)
the sum of the individual cash flows in a probability distribution multiplied by their related probabilities
Any depreciation method that produces larger deductions for depreciation in the
accounting rate of return (ARR)
the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow
Accumulated Benefit Obligation (ABO)
An approximate measure of the liability of a plan in the event of a
All equity rate
The discount rate that reflects only the business risks of a project and abstracts from the
Formal request for funds for capital investment project.
A common element of a financial plan that describes projected capital spending and the
Average accounting return
The average project earnings after taxes and depreciation divided by the average
BAN (Bank anticipation notes)
Notes issued by states and municipalities to obtain interim financing for
Basic IRR rule
Accept the project if IRR is greater than the discount rate; reject the project is lower than the
A process of creating a theoretical spot rate curve , using one yield projection as the basis for
An analysis of the level of sales at which a project would make zero profit.
A set of interlinked plans that quantitatively describe a company’s projected
List of planned investment projects.
a process of evaluating an entity’s proposed
The market in which savings are made available to those needing funds to undertake investment projects. A financial market in which longer-term (maturity greater than one year) bonds and stocks are traded.
Cash deficiency agreement
An agreement to invest cash in a project to the extent required to cover any cash
coefficient of variation
a measure of risk used when the standard deviations for multiple projects are approximately
Sufficient ability or fitness for ones needs. Possessing the necessary abilities to be qualified to
The risk that a project will not be brought into operation successfully.
An undertaking either (1) to complete a project such that it meets certain specified
a discipline that focuses on techniques or
The calculation and comparison of the costs and benefits of a policy or project.
cost-benefit analysis the analytical process of comparing the
relative costs and benefits that result from a specific course
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
An item for which a cost is compiled. For example, this can be a product,
Cost of capital
The required return for a capital budgeting project.
The return at which two alternative projects have the same net present value.
Davis-Bacon Act of 1931
A federal Act providing wage protection to nongovernment
Acceptance of a capital budgeting project contingent on the acceptance of another project.
design for manufacturability (DFM)
a process that is part of the project management of a new product; concerned with finding optimal solutions to minimizing product failures
Discounted Cash Flow
Techniques for establishing the relative worth of a future investment by discounting (at a required rate of return) the expected net cash flows from the project.
Discretionary cash flow
Cash flow that is available after the funding of all positive NPV capital investment
As the term dividend relates to a corporation's earnings, a dividend is an amount paid per share from a corporation's after tax profits. Depending on the type of share, it may or may not have the right to earn any dividends and corporations may reduce or even suspend dividend payments if they are not doing well. Some dividends are paid in the form of additional shares of the corporation. Dividends paid by Canadian corporations qualify for the dividend tax credit and are taxed at lower rates than other income.
With respect to a project financing, an arrangement under which the sponsors of a project
Exists when the costs and/or revenues of one project depend on those of another.
In project financing, the risk that the project's output will not be salable at a price that will
Equity contribution agreement
An agreement to contribute equity to a project under certain specified
Equivalent annual benefit
The equivalent annual annuity for the net present value of an investment project.
a short-run concept that represents the
Expected future cash flows
projected future cash flows associated with an asset of decision.
Extrapolative statistical models
Models that apply a formula to historical data and project results for a
The process of evaluating the investing and financing options available to a firm. It
the rate of return that equates the present values
Force majeure risk
The risk that there will be an interruption of operations for a prolonged period after a
A projection of future interest rates calculated from either the spot rates or the yield curve.
Future-Oriented Financial Information
Information about prospective results of operations, financial position and/or changes in financial position, based on assumptions about future economic conditions and courses of action. Future-oriented financial information is presented as either a forecast or a projection.
Opportunity to invest in profitable projects.
A contract that obligates a purchaser of a project's output to make cash
a preestablished rate of return against which
A pre-determined benchmark rate of return. If the rate of return expected from the project or investment falls below the benchmark, the projected investment will no longer be accepted.
Incremental cash flows
Difference between the firm's cash flows with and without a project.
Incremental internal rate of return
IRR on the incremental investment from choosing a large project
Intermarket spread swaps
An exchange of one bond for another based on the manager's projection of a
Internal Rate of Return (IRR)
The discount rate that equates the present value of the net cash
internal rate of return (IRR)
the expected or actual rate of
internal rate of return (IRR)
Discount rate at which project NPV = 0.
International Bank for Reconstruction and Development - IBRD or World Bank
International Bank for Reconstruction and Development makes loans at nearly conventional terms to countries for projects of high
Investment product line (IPML)
The line of required returns for investment projects as a function of beta
judgmental method (of risk adjustment)
an informal method of adjusting for risk that allows the decision maker
an organizational structure in which functional
Commonly sold in the form of reducing term life insurance by lending institutions, this is life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of this kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for this kind of coverage because it is usually sold during the purchase of a new mortgage. The untrained institution mortgage sales person often gives the impression that this is the only place mortgage insurance can be purchased but it is more efficiently purchased at a lower cost and with more flexibility, directly from traditional life insurance companies. No matter where it is purchased, the reducing term insurance death benefit reduces over a set period of years. Most consumers are up-sizing their residences, not down-sizing, so it is likely that more coverage is required as years pass, rather than less coverage.
Multiple rates of return
More than one rate of return from the same project that make the net present value
State or local governments offer muni bonds or municipals, as they are called, to pay for
Mutually exclusive investment decisions
Investment decisions in which the acceptance of a project
net present value method
a process that uses the discounted
net present value (NPV)
the difference between the present values of all cash inflows and outflows for an investment project
Net present value rule
An investment is worth making if it has a positive NPV. projects with negative NPVs
Net salvage value
The after-tax net cash flow for terminating the project.
Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in
opportunity cost of capital
the highest rate of return that
opportunity cost of capital
Expected rate of return given up by investing in a project.
The length of time it takes to recover the initial cost of a project, without regard to the time value of money.
the time it takes an investor to recoup an
Time until cash flows recover the initial investment of the project.
The length of time a model projects into the future.
Planning, programming and budgeting system (PPBS)
A method of budgeting in which budgets are allocated to projects or programmes rather than to responsibility centres.
the process of gathering information
The option of postponing a project without eliminating the possibility of undertaking it.
the second decision made in capital project evaluation in which projects are ranked according to their impact on the achievement of company objectives
Pro forma capital structure analysis
A method of analyzing the impact of alternative capital structure
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