Unit 9 Capital Investment Decisions

Unit 9 Capital Investment Decisions - BFA103 Financial...

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Unformatted text preview: BFA103 Financial Accounting and Decision Making 2 nd Semester 2009 ___________________________________ School of Accounting & Corporate Governance School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Unit 9 Capital Investment Decisions ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Objectives: For students to be able to: Discuss the importance of making sound capital budgeting decisions. Discuss the time value of money when making capital budgeting decisions. Solve simple capital budgeting problems. Explain the meaning of the following terms cost of funds, discounted cash flows, required rate of return ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making References: Atrill, McLaney, Harvey & Jenner. Chapter 11. ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Capital Investment Decisions Capital investment decisions form part of the long-term planning by managers. ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Investment Decisions Investment decisions are often difficult because they: involve an initial outlay of very large amounts of money ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Investment Decisions Investment decisions are often difficult because they: are not easily reversible ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Investment Decisions Investment decisions are often difficult because they: are based on long-term forecasts of sales and future cash flows ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Investment Appraisal Accounting Rate of Return (ARR) Payback Period (PP) Net present value (NPV) ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making (1) Accounting Rate of Return (ARR) The accounting rate of return method takes the average accounting profit which the investment will generate and expresses it as a percentage of the average investment in the project. ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Accounting Rate of Return (ARR) ___________________________________ average net profit ARR = average net book value of investment x 100 School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Lecture Illustration 9.1 Jayhawks Ltd a) accounting rate of return b) payback c) net present value (discount rate of 10%) ___________________________________ School of Accounting & Corporate Governance...
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This note was uploaded on 04/30/2011 for the course ECONOMIC 0053665 taught by Professor Allen during the Spring '10 term at American Baptist.

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Unit 9 Capital Investment Decisions - BFA103 Financial...

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