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