ACCY 207 Chapter Notes - Chapter 11: Earnings Before Interest And Taxes, Payback Period, Capital Budgeting

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Initial investment (in equipment, other assets, and installation costs: working capital= current assets (cash, a/r, and inventory) less current liabilities, repairs and maintenance, additional/incremental operating costs, typical cash inflows. Ignores cash flows after the payback period: an extended example of payback, payback and uneven cash flows. The net present value method: the net present value method uses discounted cash flows to analyze capital budgeting. The net present value method and income taxes. The simple rate of return method: simple rate of return method= does not focus on cash flows rather it focuses on accounting income. Ix: simple rate of return= annual incremental noi/initial investment, simple rate of return= (incremental revenues incremental expenses, including depreciation) / initial investment. Postaudit of investment projects: postaudit= involves checking whether or not expected results are actually realized; helps keep managers honest in their investment proposals.

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