Cap Ex Student lecture notes and examples

Cap Ex Student lecture notes and examples - ACCT 2552 Week...

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ACCT 2552 Week 10 Capital Expenditure Decisions Nicole Ang Quad 3097
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Announcement - Quiz II Held in Week 11 tutorials See course outline for more information!
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Topic Objectives 2. Be able to describe a typical Cap Ex process 4. Understand the value of audits 5. Understand the conflict introduced by using measures for project evaluation that are different from those used for manager evaluation
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Readings Mowen et al Chapter 17 pp. 689-717
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Lecture Outline 1. What is capital expenditure? 2. Why undertake capital investment? 3. Investment/approval process 3.1 Investment analysis techniques 3.2 Limitations 4. Management of the investment 5. Behavioural implications 6. Example
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1. Capital Expenditure (obj. 1) What is it? Expenditure on resources that will generate long-term future cash flows Assets/projects that involve long-term commitment Relating this material to earlier topics: BPR and cost behaviour Theory of Constraints Quality Key: Activities that generate value cannot be carried out if organisations do not have the resources necessary to support them!
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2. Why invest in such resources? (obj. 1) Strategy Further organisation’s long-term goal for success e.g., enhancement of quality, expansion Market position Profitability Revenue generation Cost reduction Regulation Infrastructure Each of these may have a different “return”
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3. Process of investment (obj. 2) Often referred to as capital budgeting 1. Project generation 3. Progress to approval 4. Analysis and selection of projects 5. Implementation of projects 6. Post-audit of projects
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3.1. Investment analysis techniques (obj. 3) Consider incremental costs and benefits Incremental cash outflows initial cost operating costs over project life Incremental cash inflows cost savings additional revenues
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Incremental cash flows – simple example We currently own machine L If we sell it today we’ll get $1,000 for it Costs $1,000 a year to maintain Can produce 100 units a year, all can be sold Each unit uses $2 of material, can be sold for $50 We are considering replacing L with M The initial cost is $10,000 Costs $500 a year to maintain Can produce 200 units a year, all can be sold Each unit uses $1 of material, can be sold for $50
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Which cash flows are relevant? If we keep Machine L If we buy Machine M Incremental CF if we buy M Initial cost of M? Cash from sale of L?
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This note was uploaded on 06/12/2011 for the course ASB 1001,2522, taught by Professor Nicole during the One '09 term at University of New South Wales.

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Cap Ex Student lecture notes and examples - ACCT 2552 Week...

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