A306: Chapter 7
Typical capital budgeting decisions include:
1. Cost reduction decisions (should new eq be bought to reduce costs?) 2. Expansion decisions (should new plant be acquired to increase capacity and sales?) 3. Equipment selection decisions (which of several machines should be purchased?) 4. Lease or buy decisions (should new eq be bought or leased?) 5. Equipment replacement decisions (should old eq be replaced now or later?)
Three types of cash outflows
1. immediate cash outflow ex: investment in eq, other assets, installation costs... 2. total cost of ownership /life-cycle costs 3. working capital - current assets
Capital budgeting decisions fall into two categories:
Screening and Preference Decisions
The payback, net present value and internal rate of return method focus on analyzing ______________
cash flows
The simple rate of return method focuses on _______________
incremental net operating income
Typical capital budgeting cash outflows include Blank______. Multiple select question. installation costs salvage value of old equipment initial equipment investments working capital invested cost reductions
installation costs initial equipment investments working capital invested
The two broad categories into which capital budgeting decisions fall are Blank______ and Blank______ decisions. Multiple select question. purchasing preference replacement screening
preference screening
preference decisions
relate to selecting from among several acceptable alternatives
screening decisions
relate to whether a proposed project is acceptable - whether it passes a preset hurdle
The capital budgeting methods that focus on incremental operating income rather than cash flows is Blank______. Multiple choice question. simple rate of return internal rate of return net present value payback
simple rate of return
Four methods of Capital Budgeting Decisions
- Payback method - Net Present Value method - Internal Rate of Return method - Simple Rate of Return method
Capital Budgeting
the process of planning and managing a firm's long-term investments the process of analyzing the needs of the business and selecting the assets that will maximize its value
How managers plan significant investments in projects that have long term implications such as purchasing new equipment or introducing new products is called Blank______. Multiple choice question. investment initiative controlling costs directing funds capital budgeting
capital budgeting
Typical capital budgeting decisions include Blank______ decisions. Multiple select question. employee hiring and firing product and service pricing equipment selection lease or buy cost reduction
equipment selection lease or buy cost reduction
The term capital budgeting is used to describe how managers plan significant investments in projects that have Blank______ implications. Multiple choice question. both short-term and long-term short-term long-term
long-term