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Chapter 12 Accountin
| Question | Answer |
|---|---|
| Capital Budgeting decisions are importnatn becuase (2 reasons) | These decisions often have a significant impact on a company's future probility Poor capital budgeting decisions can cost a lot of money and have even led to the bankruptcy of some companies |
| Considerations for Cash FLow Budgeting( 4) | available of funds Relationship among proposed projects THe company;s basic decsions The risk associated with a particular project |
| Define Cash Payback Technique | Identitifies the time period required to recover the cost of the capital investment from the net annual cash flow produced by the investment |
| Formula for Cash Payback | Cost of Capital Investment ------------------------------- Net ANnual Cash Flow |
| Define Net Present Value Method | DIscounted cahs flow technique is the estimated net cash flows from an investment |
| A proposal is acceptable when the project is ? | When the net present value is zero or positive |
| Formula for Net PResent Vlaue | Present value of Net Cash FLows - Capital Investment |
| Cost of Capital | THe weighted- average rate of return that the firm must pay to obtain funds from creditors and stockholders |
| Discount rate has 2 components: | 1. Cost of Capital Component 2. Risk Component |
| If a project is riskier than others, the discount rate will be | Increased |
| Other names for discounting rate areL | 1. Required rate of return 3. Hurdle rate Cutoff Rate |
| Define INtangible benefits | might include increased quality improved safety, or enhanced employee loyalty By ignoring intangible benefits, capital budgeting techniques might incorrectly eliminate projects that could be financially beneficial |
| Any project with a positive NPV will have a PI above what? | 1 |
| Formula for Profitability Index: | Present Value of Net Cash Flows -------------------------- Initial Investment |
| Formula for NPV | PV of NEt CF - Initial Investment Cost |
| Formula for Profitability Index | PV of NEt Cf ------------------- Initial Investment COst |
| Definition for RIsk Analysis | A simplifying Assumption made by many financial analysis is that projected results are known wiht certainity |
| Post- Audit | Is a through evaluation of how well a project's actual performance matches the original projections |
Created by:
JackyThrows
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