tailieunhanh - Lecture Introduction to managerial accounting (6/e): Chapter 11 - Brewer, Garrison, Noreen

Chapter 11 - Capital budgeting decisions. The term capital budgeting is used to describe how managers plan significant cash outlays on projects that have long-term implications, such as the purchase of new equipment and the introduction of new products. This chapter describes several tools that can be used by managers to help make these types of investment decisions. | Capital Budgeting Decisions Chapter 11 Chapter 11: Capital Budgeting Decisions The term capital budgeting is used to describe how managers plan significant cash outlays on projects that have long-term implications, such as the purchase of new equipment and the introduction of new products. This chapter describes several tools that can be used by managers to help make these types of investment decisions. Typical Capital Budgeting Decisions Plant expansion Equipment selection Lease or buy Cost reduction Capital budgeting analysis can be used for any decision that involves an outlay now in order to obtain some future return. Typical capital budgeting decisions include: Cost reduction decisions. Should new equipment be purchased to reduce costs? Expansion decisions. Should a new plant or warehouse be purchased to increase capacity and sales? Equipment selection decisions. Which of several available machines should be purchased? Lease or buy decisions. Should new equipment be leased or purchased? Equipment replacement decisions. Should old equipment be replaced now or later? 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. There are two main types of capital budgeting decisions: Screening decisions relate to whether a proposed project passes a preset hurdle. For example, a company may have a policy of accepting projects only if they promise a return of 20% on the investment. Preference decisions relate to selecting among several competing courses of action. For example, a company may be considering several different machines to replace an existing machine on the assembly line. In this chapter, we initially discuss ways of making screening decisions. Preference decisions are discussed toward the end of the chapter. Time Value of Money A dollar today is worth