deciding to replace old equipment c.) purchasing new equipment to reduce cost d.) increasing the salary of the current company president e.) determining which equipment to purchase among available alternatives f.) choosing to lease or buy new equipment Capital investment analysis is a budgeting procedure that companies use to assess the potential profitability of a long-term investment. For some companies, they want to track when the company breaks even (or has paid for itself). The process involves analyzing a projects cash inflows and outflows to determine whether the expected return meets a set benchmark. Capital investment (sometimes also referred to as capital budgeting) is a companys contribution of funds toward the acquisition of long-lived (long-term or capital) assets for further growth. \end{array} Capital Budgeting: Capital budgeting is whereby a business evaluates different types of investments or projects before their approval. The choice of which machine to purchase is a preference decisions. Chapter 13- Capital Budgeting Decisions - 13-5 Preference Decisions - The Ranking of Investment - Studocu Chapter 13- Capital Budgeting Decisions chapter 13: capital budgeting decisions capital budgeting the process of planning significant investments in projects Skip to document Ask an Expert Sign inRegister Sign inRegister Home Ask an ExpertNew c.) useful life of the capital asset purchased Working capital current assets less current liabilities If you cannot answer a question, read the related section again. investment The required rate of return is the minimum rate of return a project must yield to be acceptable. Discounting the after-tax cash flows by the weighted average cost of capital allows managers to determine whether a project will be profitable or not. Capital Budgeting Methods markets for shoes if there is no trade between the United States and Brazil. There is no single method of capital budgeting; in fact, companies may find it helpful to prepare a single capital budget using the variety of methods discussed below. Capital Budgeting - Definition and Explanation: The term capital budgeting is used to describe how managers plan significant outlays on projects that have long-term implications such as the purchase of new equipment and the introduction of new products. Are there concentrated benefits in this situation? The analysis assumes that nearly all costs are operating expenses, that a company needs to maximize the throughput of the entire system to pay for expenses, and that the way to maximize profits is to maximize the throughput passing through a bottleneck operation. The primary advantage of implementing the internal rate of return as a decision-making tool is that it provides a benchmark figure for every project that can be assessed in reference to a company's capital structure. Because a capital budget will often span many periods and potentially many years, companies often use discounted cash flow techniques to not only assess cash flow timing but implications of the dollar. A preference decision in capital budgeting: A) is concerned with whether a project clears the minimum required rate of return hurdle. length of time it takes for the project to recover its initial cost from the net cash inflows generated accepting one precludes accepting another Explain how consumer surplus and All cash flows other than the initial investment occur at the end of the Opening a new store location, for example, would be one such decision. Accounting for Management: What is Capital Budgeting? b.) are generally superior to non-discounting methods The payback period is identified by dividing the initial investment in the project by the average yearly cash inflow that the project will generate. The weighted -average cost of capital ______. cannot be used to evaluate projects with uneven cash flows Managers are required to evaluate and compare more than one capital investment alternative when making a(n) _____ decision. Cross), The Methodology of the Social Sciences (Max Weber), Principles of Environmental Science (William P. Cunningham; Mary Ann Cunningham), Civilization and its Discontents (Sigmund Freud), Educational Research: Competencies for Analysis and Applications (Gay L. R.; Mills Geoffrey E.; Airasian Peter W.), Biological Science (Freeman Scott; Quillin Kim; Allison Lizabeth), Give Me Liberty! Chapter 1: Managerial Accounting And Cost Concepts Chapter 2: Job-Order Costing Calculating Unit Product Costs Chapter 4: Process Costing Chapter 5: Cost-Volume-Profit Relationships Chapter 7: Activity-Based Costing: A Tool to Aid Decision Making Chapter 8 Master Budgeting Chapter 9: Flexible Budgets And Performance Analysis Volkswagen used capital budgeting procedures to allocate funds for buying back the improperly manufactured cars and paying any legal claims or penalties. The capital budget is a key instrument in implementing organizational strategies. Once the ability to invest has been established, the company needs to establish baseline criteria for alternatives. C) is concerned with determining which of several acceptable alternatives is best. { "11.01:_Prelude_to_Capital_Budgeting_Decisions" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.
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