TAILIEUCHUNG - Lecture Financial and managerial accounting (2nd Edition): Chapter 26 - Weygandt, Kimmel, Kieso

Chapter 26 - Planning for capital investments. This chapter’s objectives are to: Explain the time value of money concept, determine and interpret the net present value of an investment opportunity, determine and interpret the internal rate of return of an investment opportunity, evaluate investment opportunities using the payback method and the unadjusted rate of return. | Learning Objectives Describe capital budgeting inputs and apply the cash payback technique. 1 Use the net present value method. 2 Identify capital budgeting challenges and refinements. 3 Use the internal rate of return method. 4 Use the annual rate of return method. 5 Planning for Capital Investments 26 Corporate capital budget authorization process: Proposals for projects are requested from each department. Proposals are screened by a capital budget committee. Officers determine which projects are worthy of funding. Board of directors approves capital budget. LEARNING OBJECTIVE Describe capital budgeting inputs and apply the cash payback technique. 1 LO 1 Many companies follow a carefully prescribed process in capital budgeting. Illustration 26-1 Corporate capital budget authorization process Authorization Process LO 1 For purposes of capital budgeting, estimated cash inflows and outflows are the preferred inputs. Why? Ultimately, the value of all financial investments is determined by the value of cash flows received and paid. Cash Flow Information LO 1 Typical cash flows relating to capital budgeting decisions. Cash Outflows Initial investment Repairs and maintenance Increased operating costs Overhaul of equipment Cash Inflows Sale of old equipment Increased cash received from customers Reduced cash outflows related to operating costs Salvage value of equipment Illustration 26-2 Cash Flow Information LO 1 Capital budgeting decisions depend on: Availability of funds. Relationships among proposed projects. Company’s basic decision-making approach. Risk associated with a particular project. Cash Flow Information LO 1 Stewart Shipping Company is considering an investment of $130,000 in new equipment. Illustration 26-3 Illustrative Data LO 1 Cash payback technique identifies the time period required to recover the cost of the capital investment from the net annual cash inflow produced by the investment. Illustration 26-4 Cash payback period for Stewart is $130,000

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• Managerial accounting
• Financial and managerial accounting
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• Lecture Managerial accounting
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