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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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- Fall '13