Management and Organizational Studies 3370A/B Chapter Notes - Chapter 13: Capital Cost, Earnings Before Interest And Taxes, Payback Period

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3370A/B
• Professor: Bill Dawson

Document Summary

Capital budgeting tends to fall into two broad categories : screening decisions. Does a proposed project meet some preset standard of acceptance: preference decisions. Selecting from among several competing courses of action. A dollar today is worth more than a dollar a year form now. Therefore, investments that promise earlier returns are preferable to those that promise later returns. The capital budgeting techniques that best recognize the time value of money are those that involve discounted cash flows. To determine net present value we : calculate the present value of cash inflows, calculate the present value of cash outflows, subtract the present value of the outflows from the present value of the inflows. Acceptable because it promises a return greater than the required rate of return. Acceptable because it promises a return equal to the required rate of return. Not acceptable because it promises a return less than the required rate of return.