Chapter 10
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
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 that results from the depreciation deduction, calculated as depreciation multiplied by the corporate tax rate
pro forma financial statements
financial statements projecting future years' operations