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ACG 2071 Chapter 26 (2)

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ACG 2071 Chapter 26 (2)

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  • July 29, 2024
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  • 2023/2024
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ACG 2071 Chapter 26
Accounting Rate of Return (ARR) Formula - ANS-ARR= average annual operating
income/ average amount invested

Average Amount Invested - ANS-Average amount = (Amount invested + residual value)
/2

Capital budgeting process - ANS->develop strategies
>plan
>act
>controll

Capital budgeting process: act - ANS-Acquire and use approved capital investments

Capital budgeting process: controll - ANS-Perform post-audits
>intermediate
>end-of-useful-life

Capital budgeting process: develop strategies - ANS-Develop long-term goals

Capital budgeting process: plan - ANS->identify potential capital investments
>analyze potential capital investments
>apply capital rationing

capital investment cash flow: cash inflow - ANS->revenue generated from investment
>savings in operating costs
>residual value

capital investment cash flow: cash outflow - ANS->initial investment/ initial outflow
(acquisition cost)
>additional operating costs
>refurbishment, repairs, and maintenance

Capital rationing - ANS-the process of ranking and choosing among alternative capital
investments based on the availability of funds

Decision rule for NPV: do not invest - ANS-If the NPV is negative
(if NPV is negative the profitability index is less than 1)

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