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What Is Conservatism,and Why Is It Important in Accounting

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What is conservatism,and why is it important in accounting?


Definitions:

Cost of Capital

The return rate that a company must earn on its investment projects to maintain its market value and attract funds.

Net Present Value

A calculation used to determine the present value of a series of future cash flows minus the initial investment, often used in capital budgeting.

Return on Investment

A financial metric used to evaluate the efficiency of an investment, calculated by dividing the benefit (return) of an investment by the cost of the investment.

Present Value of An Annuity

The current worth of a series of future payments or receipts, discounted at a specific interest rate.

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