Capital budgeting is a process that helps determine whether a firm should invest in something or not. When businesses want to buy new long term assets such as new machinery or start a new project, it is imperative to consider if it would be worth it or not.

The optimal capital structure of a firm is the right combination of equity and debt financing. It allows the firm to have a minimum cost of capital while having the maximum market value.

Compound interest is the interest on the initial principal as well as the interest from the prior periods. It is also referred to as interest on interest.

The present value is the current value of future cash flows at a specific rate of return. The present value indicates that an amount of money today has a higher value than that same amount in the future.

Inflation is when the prices of goods and services increase over time. While the prices of goods and services increase, the purchasing power or value of money decreases.