Exam (elaborations)
ACG 2071 Chapter 26 (2)
ACG 2071 Chapter 26 (2)
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ACG 2071 Chapter 26Accounting 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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