ch12 Planning for Capital Investments Ke toan quan tri

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Là những kỹ năng cơ bản mà các chuyên viên kế toán quản trị, tài chính cần có cho đặc thù công việc và ngành của mình như: Phân tích báo cáo tài chính, kế toán và quản trị chi phí, lập kế hoạch kiểm soát, lập và phân tích báo cáo báo cáo quản trị, tài chính doanh nghiệp và quản trị nguồn ngân sách, quản lý rủi ro, . Page 12-1 Planning for Capital Investments Managerial Accounting Fifth Edition Weygandt Kimmel Kieso Page 12-2 study objectives Discuss capital budgeting evaluation, and explain inputs used in capital budgeting Describe the cash payback technique Explain the net present value method Identify the challenges presented by intangible benefits in capital budgeting Describe the profitability index Indicate the benefits of performing a post-audit Explain the internal rate of return method Describe the annual rate of return method Page 12-3 preview of chapter 12 Page 12-4 The The Capital Capital Budgeting Budgeting Evaluation Evaluation Process Process Corporate capital budget authorization process: Proposals for projects are requested from each department Proposals are screened by a capital budget committee Officers determine which projects are worthy of funding Page 12-5 Board of directors approves capital budget SO Discuss capital budgeting evaluation, and explain inputs used in capital Page 12-6 The The Capital Capital Budgeting Budgeting Evaluation Evaluation Process Process Cash Flow Information For purposes of capital budgeting, estimated cash inflows and outflows are the preferred inputs Why? Ultimately, the value of all financial investments is determined by the value of cash flows received and paid Page 12-7 SO Discuss capital budgeting evaluation, and explain inputs used in capital The The Capital Capital Budgeting Budgeting Evaluation Evaluation Process Process Cash Flow Information Illustration 12-2 Typical cash flows relating to capital budgeting decisions Page 12-8 SO Discuss capital budgeting evaluation, and explain inputs used in capital The The Capital Capital Budgeting Budgeting Evaluation Evaluation Process Process Cash Flow Information The capital budgeting decision depends on: Page 12-9 The availability of funds Relationships among proposed projects The company’s basic decision-making approach The risk associated with a particular project SO Discuss capital budgeting evaluation process, and explain inputs used in The The Capital Capital Budgeting Budgeting Evaluation Evaluation Process Process Illustrative Data Stewart Soup Company is considering an investment of $130,000 in new equipment Illustration 12-3 Page 12-10 SO Discuss capital budgeting evaluation process, and explain inputs used in Other Other Capital Capital Budgeting Budgeting Techniques Techniques Internal Rate of Return Method Illustration 12-23 Internal rate of return decision criteria Page 12-48 Illustration 12-22 SO Explain the internal rate of return method Other Other Capital Capital Budgeting Budgeting Techniques Techniques KRC Paper Corporation is considering adding another machine for the corrugated cardboard The machine would cost $900,000 manufacture of It would have an estimated life of years and no salvage value The company estimates that annual cash inflows would increase by $400,000 and that annual cash outflows would increase by $190,000 Management has a required rate of return of 9% Calculate the internal rate of return on this project and discuss whether it should be accepted Page 12-49 SO Explain the internal rate of return method Other Other Capital Capital Budgeting Budgeting Techniques Techniques Calculate the internal rate of return Estimated annual cash inflows $400,000 Estimated annual cash outflows 190,000 Net annual cash flow 210,000 Machine cost 900,000 Net annual cash flow 210,000 PV Factor 4.28571 Now, find the rate that corresponds to the present value Solution on Page factor 12-50 notes page SO Explain the internal rate of return method Other Other Capital Capital Budgeting Budgeting Techniques Techniques Calculate the internal rate of return PV Factor 4.28571 Since the required rate of return is only 9%, the project should be accepted Page 12-51 SO Explain the internal rate of return method Other Other Capital Capital Budgeting Budgeting Techniques Techniques Comparing Discounted Cash Flow Methods Illustration 12-24 Either method will provide management with relevant quantitative data for making capital budgeting decisions Page 12-52 SO Explain the internal rate of return method Other Other Capital Capital Budgeting Budgeting Techniques Techniques Annual Rate of Return Method Indicates the profitability of a capital expenditure by dividing expected annual net income by the average investment Illustration 12-25 Page 12-53 SO Describe the annual rate of return method Other Other Capital Capital Budgeting Budgeting Techniques Techniques Annual Rate of Return Method Illustration: Reno Company is considering an investment of $130,000 in new equipment The new equipment is expected to last five years and have zero salvage value at the end of its useful life Reno uses the straight-line method of depreciation Illustration 12-26 Page 12-54 SO Describe the annual rate of return method Other Other Capital Capital Budgeting Budgeting Techniques Techniques Annual Rate of Return Method 130,000 + Illustration 12-27 Formula for computing average investment = $65,000 Expected $13,000 = 20% annual rate of $65,000 return A project is acceptable if its rate of return is greater than management’s required rate of return Page 12-55 SO Describe the annual rate of return method Other Other Capital Capital Budgeting Budgeting Techniques Techniques KRC Paper Corporation is considering adding another machine for the corrugated cardboard The machine would cost $900,000 manufacture of It would have an estimated life of years and no salvage value The company estimates that annual revenues would increase by $400,000 and that annual expenses excluding depreciation would increase by $190,000 It uses the straight-line method to compute depreciation expense Management has a required rate of return of 9% Compute the annual rate of return Page 12-56 SO Describe the annual rate of return method Other Other Capital Capital Budgeting Budgeting Techniques Techniques Compute the annual rate of return The proposed project is acceptable Page 12-57 Solution on notes page SO Describe the annual rate of return method Comprehensive Comprehensive Cornfield Company is considering a longterm capital investment project in laser This will requireequipment an investment of $280,000, and it will have a useful life of years Annual net income is expected to be $16,000 a year Depreciation is computed by the straight-line method with no salvage value The company’s cost of capital is 10% (Hint: Assume cash flows can be computed by adding back depreciation expense.) (a) Compute the cash payback period for the project (Round to two decimals.) Page 12-58 Comprehensive Comprehensive (a) Compute the cash payback period for the project (Round to two decimals.) Investment Net income Depreciation ($280,000 / 5) Annual cash flow Cash Payback Period Page 12-59 Solution on notes page $280,000 $16,000 56,000 72,000 3.89 years Comprehensive Comprehensive  Compute the net present value for the project (Round to nearest dollar.) Discount factor (5 periods @ 10%) 3.79079 Present value of net cash flows: $72,000 x 3.79079 Capital investment Negative net present value Page 12-60 Solution on notes page $272,937 280,000 $ (7,063) Comprehensive Comprehensive  Compute the annual rate of return for the project Net income Average investment ($280,000 $16,000 2) Annual rate of return 140,000 11.4% (d) Should the project be accepted? Why? The annual rate of return of 11.4% is good However, the cash payback period is 78% of the project’s useful life, and net present value is negative Recommendation is to reject the project Page 12-61 Solution on notes page Copyright Copyright “Copyright © 2010 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.” Page 12-62
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