Managerial Accounting Chapter 12

Managerial Accounting Chapter 12 - Managerial Accounting...

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Managerial Accounting Chapter 12 – Capital Budgeting Decisions Capital Budgeting – Describes how managers plan significant investments in projects that have long-term implications (purchase of new equipment or introduction of new products) Capital Budgeting – Planning Investments - Typical Decisions o Cost reduction decisions o Expansion Decisions o Equipment selection decisions o Lease or Buy Decisions - Two Broad Categories of Decisions: o Screening Decisions – whether a proposed project is acceptable (passes a preset hurdle) o Preference Decisions – Selecting from among several acceptable alternatives The Time Value of Money - Dollar today is worth more than a dollar tomorrow - Capital budgeting techniques involve discounting cash flows o Easiest method to use is the net present value method The Net Present Value Method Difference between present value of project’s cash inflows is compared to the present value of the project’s cash outflows. The difference is the net present value
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This note was uploaded on 02/28/2010 for the course AEM 3230 taught by Professor Little,j.e. during the Spring '08 term at Cornell.

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Managerial Accounting Chapter 12 - Managerial Accounting...

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