In the fifth year after purchase an outflow of 8000

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Unformatted text preview: enerate cash inflows of $5,000 each year for 4 years. In the fifth year after purchase, an outflow of $8,000 may be required to overhaul the machine, after which it generates inflows of $5,000 each year for 5 more years. This nonconventional pattern is illustrated on the time line in Figure 8.2. Difficulties often arise in evaluating projects with nonconventional patterns of cash flow. The discussions in the remainder of this chapter and in Chapters 9 and 10 are therefore limited to the evaluation of conventional cash flow patterns. Review Questions 8–1 8–2 8–3 8–4 LG3 What is capital budgeting? Do all capital expenditures involve fixed assets? Explain. What are the key motives for making capital expenditures? Discuss, compare, and contrast them. What are the five steps involved in the capital budgeting process? Differentiate between the members of each of the following pairs of capital budgeting terms: (a) independent versus mutually exclusive projects; (b) unlimited funds versus capital rationing; (c) accept–reject versus ranking approaches...
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