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
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Chapter 16 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
- In 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_forwardDiscuss the advantages and disadvantages of using the Net Present Value method for analyzing capital investment projects.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_forward
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- We 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_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_forwardThe use of natural resources in an economic activity involves setting up a project forharvesting (i.e. extracting) these resources. For the project to be viable, both economic andfinancial indicators - such as net present value (NPV) and internal rate of return (IRR)considering time value of money - are employed. a) Briefly explain the concept of "time value of money". b) Moreover, explain how you will use NPV and IRR to determine the viability of a project.arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT