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