暨南大学管理学院成本与管理会计课件 Chapter14.ppt

Capital Budgeting Decisions Chapter Fourteen Typical Capital Budgeting Decisions Typical Capital Budgeting Decisions Capital budgeting tends to fall into two broad categories . . . Screening decisions. Does a proposed project meet some preset standard of acceptance? Preference decisions. Selecting from among several competing courses of action. Time Value of Money A dollar today is worth more than a dollar a year from now. Therefore, investments that promise earlier returns are preferable to those that promise later returns. Time Value of Money Learning Objective 1 The Net Present Value Method To determine net present value we . . . Calculate the present value of cash inflows, Calculate the present value of cash outflows, Subtract the present value of the outflows from the present value of the inflows. The Net Present Value Method General decision rule . . . The Net Present Value Method Typical Cash Outflows Typical Cash Inflows Recovery of the Original Investment Depreciation is not deducted in computing the present value of a project because . . . It is not a current cash outflow. Discounted cash flow methods automatically provide for return of the original investment. Recovery of the Original Investment Carver Hospital is considering the purchase of an attachment for its X-ray machine. No investments are to be made unless they have an annual return of at least 10%.Will we be allowed to invest in the attachment? Recovery of the Original Investment Recovery of the Original Investment Two Simplifying Assumptions Choosing a Discount Rate The firm’s cost of capital is usually regarded as the minimum required rate of return. The cost of capital is the average rate of return the company must pay to its long-term creditors and stockholders for the use of their funds. The Net Present Value Method Lester Company has been offered a five year contract to provide component parts for a large manufacturer. The Net Present Value Method At the end of five years