ACCT 2230 Chapter 13: Chapter 13 Managerial Accounting Notes
17 Dec 2011
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Capital budgeting: the process of planning significant outlays n projects that have long-term implications such as purchases of new equipment or the intro of new products. Capital budgeting involves investment, a company must commit funds now in order to receive a return later. Payback period: the length of time that it takes for a project to recover its initial cost out of the cash receipts that it generates. The quicker the cost of an investment can be recovered, the more desirable is the investment. * formula can only be used when net annual cash inflow is the same every year. A shorter payback period doesn"t always mean that one investment is more desirable than another. One may have shorter life-span that cant be seen. Payback method doesn"t adequately consider the time value of money. Cash inflow might be received several years in the future. Good because it can help identify which proposals are in the ballpark .
