TAILIEUCHUNG - Lecture Fundamental accounting principles - Chapter 25: Capital budgeting and managerial decisions

Lecture Fundamental accounting principles - Chapter 25: Capital budgeting and managerial decisions. This chapter describe the importance of relevant costs for short-term decisions, evaluate short-term managerial decisions using relevant costs, analyze a capital investment project using break-even time, compute payback period and describe its use. | Capital Budgeting and Managerial Decisions Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 25 PowerPoint Editor: Beth Kane, MBA, CPA Wild, Shaw, and Chiappetta Fundamental Accounting Principles 22nd Edition Chapter 25: Capital Budgeting and Managerial Decisions Capital budgeting is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell. Outcome is uncertain. Large amounts of money are usually involved. Investment involves a long-term commitment. Decision may be difficult or impossible to reverse. Capital Budgeting 2 Capital budgeting decisions require careful analysis because they are usually the most difficult and risky decisions that managers make. Specifically, a capital budgeting decision is risky because: Capital budgeting is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell. Common examples include buying a machine or a building, or acquiring an entire company. An objective for these decisions is to earn a satisfactory return on investment. Capital budgeting decisions require careful analysis because they are usually the most difficult and risky decisions that managers make. Specifically, a capital budgeting decision is risky because (1) the outcome is uncertain, (2) large amounts of money are usually involved, (3) the investment involves a long-term commitment, and (4) the decision could be difficult or impossible to reverse, no matter how poor it turns out to be. Risk is especially high for investments in technology due to innovations and uncertainty. 25-P1: Payback Period 3 Payback Period The payback period of an investment is the amount of time it takes a project to recover its initial investment amount. Managers prefer investing in projects with shorter payback periods. 4 P 1 The payback period is the expected amount of time it takes a .

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