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11 Cards in this Set
- Front
- Back
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The term CAPITAL BUDGETING is used to describe how managers plan significant investments in project that have long-term or short-term implications. |
Long-term - The term CAPITAL BUDGETING is used to describe how managers plan significant investments in project that have long-term or implications.
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The following are appropriately classified as capital budgeting decisions |
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The two broad categories into which capital budgeting decisions fall are |
Screening decisions and Preference decisions |
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Relates to whether a proposed project is acceptable is a screening decision, a capital decision or preference decision |
Screening decision relate to whether a proposed project is acceptable |
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The required rate of return is to minimum, maximum or zero balance a project must yield to be acceptable. |
The required rate of return is to minimum a project must yield to be acceptable.
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____________ decisions, by contrast, relate to selecting from among several acceptable alternative |
Preference decision, by contrast, relate to selecting from among several acceptable alternative |
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When considering a purchase of equipment, discounting is necessary because future cost saving are worth less/more today than when they actually occur in the future . |
LESS: When considering a purchase of equipment, discounting is necessary because future cost saving are worth less today than when they actually occur in the future.
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______ _______ ________ difference between the present value of a project's cash inflows an the present value of the project's cash outflows |
Net present value is the difference between the present value of a project's cash inflows an the present value of the project's cash outflows |
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Company purchased a new tour bus at a cost of $320,000. The bus is expected to increase cash inflows over the next 5 years as follow: $98,000 in years 1; 87,5000 in year 2; $74,5000 in year 3; $60,000 in year 4; and $59,000 in year 5. The payback period for the new bus is ______ years. |
Initial investment $320,000. first year 98000+ second year $87500+third year $74500+fourth year $60000=3200000 By the fourth year will be a payback period for the new purchase. |
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Internal Rate of Return or Simple rate of return is the discount rate that makes Net present value = zero for a project
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Internal Rate of Return is the discount rate that makes Net Present Value = zero for a project
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The _____ period dose NOT focus on a project's profitability, but rather on a project's ability to earn a quick return |
The payback period dose NOT focus on a project's profitability, but rather on a project's ability to earn a quick return
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