JJ09 - Capital Budgeting Decisions Chapter 9 Capital...

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1 Capital Budgeting Decisions Chapter 9: Capital Budgeting Decisions 1. Capital Budgeting Decisions include the acquisition of long-lived assets. 2. Require that capital (company funds) be expended to acquire additional resources. 3. Also known as Capital Expenditure Decisions . Capital Budgeting Decisions: Examples 1. New retail store outlets. 2. Robotic manufacturing equipment. 3. Digital imaging systems for healthcare facilities. 4. New chairlift for a ski resort. 5. New fleets: Ships Planes Cars 6. New equipment for food preparation.
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2 Approaches Net Present Value Internal Rate of Return Payback Accounting Rate of Return The Net Present Value Method 1. Based on the time-value of money. 2. Recall that only incremental cash flows are relevant. 3. Three-step process. The Net Present Value Method: Step 1 ¾ Identify the amount and time period of each cash flow associated with a potential investment. ¾ Note: Investment projects have both cash inflows and cash outflows.
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