Key Terms

capital investment

a major expenditure that requires a large up-front investment and is expected to generate substantial cash inflow in return

cash flow

the amount of cash actually flowing into and out of a business, as opposed to income (which is based on accounting rules, accruals, and reports)

future value

the value of an asset or holding at a point in the future based on expectations of that asset’s growth at a certain rate of return

mixed stream

a set of cash flows over a period of time that can vary in amount from one period to the next

present value

the value of an asset in today’s dollars based on future growth expectations at an assumed interest rate