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Financial Terms | |
Project |
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Definition of ProjectProjectAn investment opportunity for a company projectthe purchase, installation, and operation of a capital asset
Related Terms:Conventional projectA project with a negative initial cash flow (cash outflow), which is expected to be Independent projectA project whose acceptance or rejection is independent of the acceptance or rejection of independent projectan investment project that has no specific Independent ProjectsA situation where an increase (or decrease) in the benefits of one Make-Work ProjectA project, such as digging holes and filling them up again, that has no useful purpose other than to make work. mutually exclusive projectsa set of proposed capital projects from which one is chosen, causing all the others to be rejected ![]() mutually exclusive projectsTwo or more projects that cannot be pursued simultaneously. mutually inclusive projectsa set of proposed capital projects that are all related and that must all be chosen if the primary project is chosen project cost of capitalMinimum acceptable expected rate of return on a project given its risk. Project FinancingDebt finance, usually non-recourse, provided by financial institutions for the development and construction of a new project. Project loan certificate (PLC)A primary program of Ginnie Mae for securitizing FHA-insured and coinsured Project loan securitiesSecurities backed by a variety of FHA-insured loan types - primarily multi-family Project loansUsually FHA-insured and HUD-guaranteed mortgages on multiple-family housing complexes, Project notes (PNs)project notes are issued by municipalities to finance federally sponsored programs in Projected available balanceThe future planned balance of an inventory item, Projected maturity dateWith CMOs, final payment at the end of the estimated cash flow window. ProjectionFuture-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 Accelerated depreciationAny 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 rateThe discount rate that reflects only the business risks of a project and abstracts from the Appropriation requestFormal request for funds for capital investment project. Assets requirementsA common element of a financial plan that describes projected capital spending and the Average accounting returnThe 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 ruleAccept the project if IRR is greater than the discount rate; reject the project is lower than the BootstrappingA process of creating a theoretical spot rate curve , using one yield projection as the basis for Break-even analysisAn analysis of the level of sales at which a project would make zero profit. BudgetA set of interlinked plans that quantitatively describe a company’s projected capital budgetList of planned investment projects. capital budgetinga process of evaluating an entity’s proposed Capital MarketThe 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 agreementAn agreement to invest cash in a project to the extent required to cover any cash coefficient of variationa measure of risk used when the standard deviations for multiple projects are approximately CompetenceSufficient ability or fitness for ones needs. Possessing the necessary abilities to be qualified to Completion riskThe risk that a project will not be brought into operation successfully. Completion undertakingAn undertaking either (1) to complete a project such that it meets certain specified cost accountinga discipline that focuses on techniques or Cost-Benefit AnalysisThe calculation and comparison of the costs and benefits of a policy or project. cost-benefit analysis the analytical process of comparing therelative costs and benefits that result from a specific course Cost company arrangementArrangement whereby the shareholders of a project receive output free of Cost objectAn item for which a cost is compiled. For example, this can be a product, Cost of capitalThe required return for a capital budgeting project. Crossover rateThe return at which two alternative projects have the same net present value. Davis-Bacon Act of 1931A federal Act providing wage protection to nongovernment DependentAcceptance 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 FlowTechniques 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 flowCash flow that is available after the funding of all positive NPV capital investment DividendAs 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. Dividend clawbackWith respect to a project financing, an arrangement under which the sponsors of a project Economic dependenceExists when the costs and/or revenues of one project depend on those of another. Economic riskIn project financing, the risk that the project's output will not be salable at a price that will Equity contribution agreementAn agreement to contribute equity to a project under certain specified Equivalent annual benefitThe equivalent annual annuity for the net present value of an investment project. expected capacitya short-run concept that represents the Expected future cash flowsprojected future cash flows associated with an asset of decision. Extrapolative statistical modelsModels that apply a formula to historical data and project results for a Financial planningThe process of evaluating the investing and financing options available to a firm. It Fisher ratethe rate of return that equates the present values Force majeure riskThe risk that there will be an interruption of operations for a prolonged period after a Forward rateA projection of future interest rates calculated from either the spot rates or the yield curve. Future-Oriented Financial InformationInformation 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. Growth opportunityOpportunity to invest in profitable projects. Hell-or-high-water contractA contract that obligates a purchaser of a project's output to make cash hurdle ratea preestablished rate of return against which Hurdle RateA 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 flowsDifference between the firm's cash flows with and without a project. Incremental internal rate of returnIRR on the incremental investment from choosing a large project Intermarket spread swapsAn 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 BankInternational 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 matrix structurean organizational structure in which functional Mortgage InsuranceCommonly 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 returnMore than one rate of return from the same project that make the net present value Municipal bondState or local governments offer muni bonds or municipals, as they are called, to pay for Mutually exclusive investment decisionsInvestment decisions in which the acceptance of a project net present value methoda 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 ruleAn investment is worth making if it has a positive NPV. projects with negative NPVs Net salvage valueThe after-tax net cash flow for terminating the project. Opportunity cost of capitalExpected return that is foregone by investing in a project rather than in opportunity cost of capitalthe highest rate of return that opportunity cost of capitalExpected rate of return given up by investing in a project. PaybackThe length of time it takes to recover the initial cost of a project, without regard to the time value of money. payback periodthe time it takes an investor to recoup an payback periodTime until cash flows recover the initial investment of the project. Planning horizonThe 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. postinvestment auditthe process of gathering information Postponement optionThe option of postponing a project without eliminating the possibility of undertaking it. preference decisionthe 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 analysisA method of analyzing the impact of alternative capital structure Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |