Finance Final CH 10
pro forma financial statements
financial statements projecting future years operations
stand alone principle
the assumption that evaluation of a project may be based on the projects incremental cash flows
erosion
the cash flows of a new project that come at the expense of a firms existing projects
incremental cash flows
the difference between a firms future cash flows with a project and those without the project
opportunity cost
the most valuable alternative that is given up if a particular investment is undertaken
depreciation tax shield
the tax saving results from the depreciation deduction, calculated as depreciation multiplied by the corporate tax rate
sunk cost
a cost that has already been incurred and cannot be removed and therefore should not be considered in an investment decision
accelerated cost recovery system (ACRS)
a depreciation method under US tax law allowing for the accelerated write off of property under various classifications