Outcome:- On completion of this unit‚ a student shall be able to: Explain the role of capital budgeting techniques in the capital budgeting process. Calculate‚ interpret and evaluate payback period‚ net present value‚ profitability index and internal rate of return. 9-1 What are the most commonly used capital budgeting procedures? Why is capital-budgeting decision so important? Why are capital-budgeting errors so costly? 9-2 The treasurer of Anthony Press. has projected the cash flows of
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LECTURE 9 CAPITAL BUDGETING CLASS QUESTION (The information below is for question 1 & 2) Toya Motors needs a new machine for production of its 2005 models. The financial vice president has appointed you to do the capital budgeting analysis. You have identified two different machines that are capable of performing the job. You have completed the cash flow analysis‚ and the expected net cash flows are as follows: Expected Net Cash Flow Year Machine B Machine O 0 ($5‚000) ($5‚000) 1 2‚085
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Review of Capital Budgeting 1. The Kramer Tool Company has a photocopying machine that it purchased two years ago for $70‚000. The machine is being depreciated straight line over 5 years to a zero salvage value. A competing firm is offering a new photocopying machine that cost $60‚000 and can be depreciated over 5 years to a zero salvage value. Kramer has been assured that the new machine can be sold for $10‚000 after five years. The new machine requires less maintenance and operator attendance
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The Society for Financial Studies Decision Processes‚ Agency Problems‚ and Information: An Economic Analysis of Capital Budgeting Procedures Author(s): Anthony M. Marino and John G. Matsusaka Source: The Review of Financial Studies‚ Vol. 18‚ No. 1 (Spring‚ 2005)‚ pp. 301-325 Published by: Oxford University Press. Sponsor: The Society for Financial Studies. Stable URL: http://www.jstor.org/stable/3598074 . Accessed: 15/11/2013 17:17 Your use of the JSTOR archive indicates your acceptance
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Question 1: 2D1-LS02 Which of the following items is not an example of a capital expenditure? A ventilation system upgrade for EPA compliance. Project bonuses paid to employees. Purchase of a new assembly machine that will cut labor and maintenance costs. Purchase of a new computer server for the research and development group. Long-term capital budget expenditures are often grouped in one of the following categories: new machines and equipment intended for expansion‚ replacement of existing
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CHAPTER 4 PART II: VALUATION AND CAPITAL BUDGETING Discounted Cash Flow Valuation The signing of big-name athletes is often accompanied by great fanfare‚ but the numbers are often misleading. For example‚ in late 2010‚ catcher Victor Martinez reached a deal with the Detroit Tigers‚ signing a contract with a reported value of $50 million. Not bad‚ especially for someone who makes a living using the “tools of ignorance” (jock jargon for a catcher’s equipment). Another example is the contract signed
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Project-1: Capital Budgeting Simulation MBA AF 620 Objective: The purpose of the Capital Budgeting Simulation project is to explore the problem of resource allocation within a corporation by looking at many projects from the senior-management perspective. This simulation is a useful complement to capital-budgeting cases that focus on single projects. Illustrate the impact of capital rationing on capital investment choices. Exercise and interpret the implication of tools of investment analysis
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Corporate Finance: The Core (Berk/DeMarzo) Chapter 7 - Fundamentals of Capital Budgeting 1) Which of the following statements is false? A) Because value is lost when a resource is used by another project‚ we should include the opportunity cost as an incremental cost of the project. B) Sunk costs are incremental with respect to the current decision regarding the project and should be included in its analysis. C) Overhead expenses are associated with activities that are not directly attributable to a single business
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Capital investment decisions are those decisions that involve current outlays in return for a stream of benefits in future years. It is true to say that all the firm ’s expenditures are made in expectation of realizing future benefits. Investment decisions are extremely important because they have a major long term effect on a firm ’s operations. For example‚ when BMW decided to build some of its cars in Greece‚ South Carolina‚ it made an investment in additional productive capacity that will affect
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importance of capital budgeting cannot be exaggerated. Some of the reasons for this importance are mentioned below: • Capital budgeting involves a greater amount of risk on account of unforeseen situations. Capital is generally invested with the expectation of future benefits which are likely to accrue over a long period of time. Therefore‚ a right decision has to be taken to ensure a favorable impact on the profitability and competitive position of the firm. • Capital budgeting decisions are
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