Clearly only those investments that can be expected

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Unformatted text preview: ld therefore allow the firm to maximize its stock price. REVIEW OF LEARNING GOALS Understand the key motives for capital expenditure and the steps in the capital budgeting process. Capital budgeting is the process used to evaluate and select capital expenditures consistent with the firm’s goal of maximizing owner wealth. Capital expenditures are long-term investments made to expand, replace, or renew fixed assets or to obtain some less tangible benefit. The capital budgeting process includes five distinct but interrelated LG1 steps: proposal generation, review and analysis, decision making, implementation, and follow-up. Define basic capital budgeting terminology. Capital expenditure proposals may be independent or mutually exclusive. Typically, firms have only limited funds for capital investments and must ration them among carefully selected projects. Two basic approaches to capital budgeting decisions are LG2 CHAPTER 8 the accept–reject approach and the ranking approach. Conventional cash flow patterns consist of an initial outflow followed...
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