Unformatted text preview: s compete for these
dollars. 359 Capital Budgeting Cash Flows be accepted. Typically, though, firms operate under capital rationing instead.
This means that they have only a fixed number of dollars available for capital
expenditures and that numerous projects will compete for these dollars. Procedures for dealing with capital rationing are presented in Chapter 10. The discussions that follow here and in the following chapter assume unlimited funds. Accept–Reject versus Ranking Approaches
The evaluation of capital
expenditure proposals to
determine whether they meet the
firm’s minimum acceptance
The ranking of capital expenditure projects on the basis of
some predetermined measure,
such as the rate of return. Two basic approaches to capital budgeting decisions are available. The accept–
reject approach involves evaluating capital expenditure proposals to determine
whether they meet the firm’s minimum acceptance criterion. This approach can
be used when the firm has unlimited funds, as a preliminary step when evalu...
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