The Capital Budgeting Decision参考.ppt

The Capital Budgeting Decision 12 Chapter 12 - Outline What is Capital Budgeting? 5 Methods of Evaluating Investment Proposals Average Accounting Return Payback Period Net Present Value Internal Rate of Return Profitability index Accept/Reject Decision Capital Rationing Net Present Value Profile Capital Cost Allowance Determining Whether to Purchase a Machine Summary and Conclusions What is Capital Budgeting? Capital Budgeting: represents a long-term investment decision for example, buy a new computer system or build a new plant involves the planning of expenditures for a project with a life of 1 or more years emphasizes amounts and timing of cash flows and opportunity costs and benefits investment usually requires a large initial cash outflow with the expectation of future cash inflows considers only those cash flows that will change as a result of the investment all cash flows are calculated aftertax Administrative Considerations Steps in the decision-making process: Search for and discovery of investment opportunities Collection of data Evaluation and decision making Reevaluation and adjustment Capital Budgeting Procedures Accounting Flows versus Cash Flow The capital budgeting process focuses on cash flows rather than income on an aftertax basis. Evaluation involves the incorporation of all incremental cash flows in the capital budgeting analysis. Sunk costs are ignored. Opportunity costs included. Accounting flows are not totally disregarded in the capital budgeting process. Investors’ emphasis on EPS. Top management may elect to glean the short-term personal benefits of income effect. Table 12-1Cash flow for Alston Corporation Earnings before amortization and taxes (cash inflow) . . . $20,000 Amortization (non-cash expense) . . . . . . . . 5,000 Earnings before taxes . . . . . . . . . . . . 15,000 Taxes (cash outflow) . . . . . . . . . . . . 7,500 Earnings aftertaxes . . . . . . . . . . . . 7,500 Amortization . . . . . .