Chapter 14 - Capital Budgeting Decisions

Chapter 14 - Capital Budgeting Decisions

1. Types of Capital Budgeting Decisions

   • Equipment Selection
   • Lease or Buy
   • Equipment Replacement
   • Cost REduction

2. Screening Decisions: Does a proposed project meet some preset standard of acceptance?

3. Preference Decisions: Selecting From among several competing courses of action.

4. Payback Method

   • The payback method focuses on the payback period, which is the length of time that it takes for a project to recoup its initial cost out of the cash receipts that it generates

5. Net Present Value

   • The NPV method compares the present value of a project's cash inflows with the present value of the cash outflows. The difference between these two streams of cash flows is called the new present value

6. Internal Rate of Return

   • The internal rate of return is the rate of return promised by an investment project over its useful life. It is computed by finding the discount rate that will cause the net present value of a project to be zero

7. Time Value of Money: A dollar today is worth more than a dollar a year from now.

Images and files in the map

• Time Value of Money (concept explained) (Embed)
• Present Value of an Annuity (Embed)
• Net Present Value (NPV) (Embed)
• IRR (Internal Rate of Return) (Embed)
• How to Calculate the Payback Period (Embed)