Financial Accounting > LECTURE SLIDES/NOTES > ACCT 3330-ch21 (All)

ACCT 3330-ch21

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21-1 No. Capital budgeting focuses on an individual investment project throughout its life, recognizing the time value of money. The life of a project is often longer than a year. Accrual accounting ... focuses on a particular accounting period, often a year, with an emphasis on income determination. 21-2 The six stages in capital budgeting are: 1. An identification stage to distinguish which types of capital expenditure projects are necessary to accomplish organization objectives and strategies. 2. A search stage that explores alternative capital investments that will achieve organization objectives. 3. An information-acquisition stage to consider the expected costs and expected benefits of alternative capital investments. 4. A selection stage to choose projects for implementation. 5. A financing stage to obtain project financing. 6. An implementation and control stage to get projects underway and monitor their performance. 21-3 In essence, the discounted cash-flow method calculates the expected cash inflows and outflows of a project as if they occurred at a single point in time so that they can be aggregated (added, subtracted, etc.) in an appropriate way and then can be compared to cash flows from other projects. 21-4 No. Only quantitative outcomes are formally analyzed in capital budgeting decisions. Many effects of capital budgeting decisions, however, are difficult to quantify in financial terms. These nonfinancial or qualitative factors (for example, the number of accidents in a manufacturing plant or employee morale) [Show More]

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