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What are three reasons that cash is worth more today than cash to be received in the future? Define the term return on investment. How is the return normally expressed? Give an example of a capital investment return. How does a company establish its minimum acceptable rate of return on investments? What criteria determine whether a project is acceptable under the net present value method? Does the net present value method provide a measure of the rate of return on capital investments? How do capital investments affect profitability? What is a postaudit? How is it useful in capital budgeting?

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Solution Summary

Reasons that cash is worth more today than cash to be received in the future. Definition of the term return on investment, how it is expressed. Capital investment return is explained and applied. Establishment of minimum acceptable rate of return on investments. Post Audit Capital Budgeting

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Time Value of Money
1. Define the term return on investment (ROI). How is the return normally expressed?
The ROI is a measure used to evaluate the efficiency of an investment/s. ROI is calculated, Benefit (return) of an investment divided by the cost of the investment.

2. Give an example of a capital investment return.
A capital investment is the investment of company capital into long-term projects. An example would be income earned from the purchase of a new piece of equipment for the company's production department.

3. How does a company establish its minimum acceptable rate of return on investments?
The minimum acceptable rate of return, often abbreviated MARR, is the minimum ...

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