Evaluate the capital investments projects based on the given statement.
Explanation of Solution
Capital budgeting: Capital budgeting is a process by which the management can plan and evaluate the investment proposal of plant assets. The capital budgeting decision is crucial for the long-run financial health of a business enterprise, because the large amount of funds is committed for long period of time, at the same time the capital budgeting decisions are difficult to reverse once the funds have been committed.
Evaluate the capital investments projects based on the given statement as follows:
“Time is money” is an apt phrase to evaluate the capital investment projects, because today cash flow is not economically equivalent to the future cash flow. Since, today cash flow can be invested for some
Want to see more full solutions like this?
Chapter 16 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
- Discuss the advantages and disadvantages of using the Internal Rate of Return method for analyzing capital investment projects.arrow_forwardDiscuss the advantages and disadvantages of using the Net Present Value method for analyzing capital investment projects.arrow_forwardIn a few sentences, answer the following question as completely as you can. What is the stand-alone principle?Why is it important to the analysis of capital projects?arrow_forward
- How can we determine the required capital investment for an investment project?arrow_forwardExplain how a net present value (NPV) profile is used to compare capital projects. How does this profile compare to that of internal rate of return (IRR)? How does reinvestment affect both NPV and IRR?arrow_forwardBased on the picture, a. Calculate the Internal Rate of Return for the project. b. If you were the financial manager, would you accept this project? Why? Please help me ASAP. Thanks!arrow_forward
- Relate the idea of cost of capital to the opportunity cost concept. Is the cost of capital the opportunity cost of project money?arrow_forwardDescribe the concept of rate of return based on the return on invested capital in terms of a project?arrow_forwardHow can the Cash flow be considered to evaluate the economic meritof any investment project?arrow_forward
- How can we measure the true rate of return of any internal portion of an investment project?arrow_forwardIn a few sentences, answer the following question as completely as you can. What is operating leverage? How is it measured? Why is it important to the analysis of capital expenditure projects?arrow_forwardWe should accept a project if the Net Present Value is positive and the Internal Rate of Return is higher than the cost of capital. What are the reasons for that, what this means?arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT