Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
19 Cards in this Set
- Front
- Back
|
6 Stages of Capital Budgeting
|
1) Identification Stage
2)Search Stage 3)Information-Acquisition Stage 4)Selection Stage 5)Financing Stage 6)Implementation and Control Stage |
|
|
Identification Stage
|
Management determines the type of capital projects that are necessary to achieve mgt's objectives.
|
|
|
Search Stage
|
MGT attempts to identify alternative capital investments that will achieve MGT's objectives.
|
|
|
Information-Acquisition Stage
|
MGT attempts to revaluate the various investments in terms of their costs and benefits.
|
|
|
Selection Stage
|
MGT chooses the projects that best meet the criteria established.
|
|
|
Financing Stage
|
MGT decides on the best source of funding for the project.
|
|
|
Implementation and Control Stage
|
MGT undertakes the project and monitors the performance of the investment.
|
|
|
Sunk Costs
|
are committed costs that are unavoidable and are therefore irrelevant to the decision process.
|
|
|
Avoidable Costs
|
costs that will not continue to be incurred if a dept. or product is terminated.
|
|
|
Committed Costs
|
arise from a company's basic commitment to open its doors and engage in business. (prop taxes, MGT salaries)
|
|
|
Discretionary Costs
|
fixed costs whose level is set by current MGT decisions. (R&D)
|
|
|
Relevant Costs
|
future costs that will change as a result of a specific decision.
|
|
|
Differential Cost
|
the diference in cost between two alternatives.
|
|
|
Opportunit Cost
|
the maximum income or savings foregone by rejecting an alternative.
|
|
|
Outlay cost
|
is the cash disbursement associated with a specific project.
|
|
|
Payback Method
Know Calculation |
evaluates investments on the length of time until recapture of the investment.
|
|
|
Discounted Payback
Know Calculation |
Same as payback, except that cash flows are first discounted to their present value. Does not consider total project profability.
|
|
|
Accounting Rate of Return
|
computes an approximate rate of return which ignores the time value of money.
ARR=Annual Net Income/Average or (Initial) Investment |
|
|
NPV
|
NPV=(Present value of future cash flows)-(required investment)
|
