ACCT10001 Chapter Notes - Chapter 12: Decision Rule, Net Present Value, Opportunity Cost
22 May 2018
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Often involve large amounts of resources
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Involve risk and uncertainty (inability to cost projects accurately and to foresee operating
revenues and costs)
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Often span long periods of time
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Often require large initial cash outlay
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Returns are received over a long period into the future
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Often difficult to reverse (without loss of substantial funds)
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Must be made on basis of best available data
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Common features:
Measured with some degree of confidence
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Same decision is taken many times, so varying outcomes can be analysed
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Risk = measurable variation in outcomes
Uncertainty = unmeasurable variation in outcomes
Identify all the investment alternatives available at the time.
1.
Select a decision
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support tool and set the decision rule.
2.
Collect the data necessary to make the decision.
3.
Analyse the data.
4.
Interpret the results in relation to the decision rule.
5.
Make the decision.
6.
(Arrange finance and start planning/physical implementation)
7.
Process of decision making:
New investments to increase revenue
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New technology to decrease costs
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Replacement of old assets as they wear out
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Investment alternative categories:
Nature and scope of investment decisions
Wednesday, 22 March 2017 10:09 PM
ARA Page 1
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