ACCTG 241 Lecture Notes - Lecture 1: Weighted Arithmetic Mean, Net Present Value
27 Jan 2017
School
Department
Course
Professor
Document Summary
Capital budgeting a process used for analysis and selection of the long-term investments of a business: buildings, equipment, other businesses etc. The 4 steps in the capital budgeting process. Requests, opportunities, expansion: select appropriate investments. New present value analysis: determine how to finance the investments, accept or reject the opportunity. Identifying long-term investment opportunities: generally, capital investments are made for 4 reasons. Replacement of worn-out or unproductive operating assets. Expansion of operating capacity due to increased or new demand. One time costs necessary and reasonable costs to get the asset ready for its intended use. Purchase price, sales tax, freight charges, brokerage fees: selecting appropriate investments installation costs. Cost of capital calculated as the weighted average cost of debt and equity financing. Minimum return that must be generated to satisfy both creditors and owners: rate of interest for creditors, rate of return for owners. Used as a benchmark for selecting investments: aka the hurdle rate.
