Capital Budgeting
Sunk costs are costs that have already been incurred. So for example if a company spent money on a marketing assessment for a new product, that would not be included in the decision to bring that product to market because that money was already spent. Sunk costs are not included in a capital budgeting analysis.
Opportunity costs are not included in a capital budgeting analysis. An opportunity cost is something that another opportunity that could have been taken up with that money. Each opportunity should get its own analysis. Consider that there are, if one were to take this idea out to its logical conclusion, nearly endless opportunities. Clearly, the NPV of umpteen opportunities will outweigh the NPV of one, rendering every project a money-loser. The way to compare different options is to give each one its own capital budgeting analysis, and then choose the best one.
Side effects. Side effects are things that occur in the aftermath of initiating the new project. An example might be if a project increases capacity at one plant, that another plant elsewhere loses production,...
Joint costing systems should bear in mind the legal constraints on the use of such systems, and should provide accurate information to managers in order to be most useful in the managerial accounting context. Firms need to remain competitive, which indicates that the market will set prices to some degree. This implies that firms can make better decisions with respect to what projects/products they wish to pursue by understanding the
I would suggest therefore that the authors work towards a practical output. Their underlying assumptions about the nature of capital budgeting for research and development projects are strong, but their output is unwieldy. Coming from the perspective of someone who would be engaged in the capital budgeting exercise, I would want to have a model to which I assign my staff and expect a useable result. Interestingly, the authors appear to
Franchise South Coast Railway is evaluating a proposal for a five-year franchise from the UK government. This proposal would be to operate a high speed commuter rail service from 2018 to 2022. The following report will examine the financials relating to this decision, and the decision-making heuristic. Decision-Making The decision at hand is essentially a capital budgeting decision. There are a few different ways to evaluate a capital budgeting decision. The most common
Finance Project There are only a couple of key assumptions used in the creation of the NPV data. First, with respect to fixed costs, the wording "will increase by 3.8% over the life of the project" is ambiguous. We need an actual figure for each year. It is assumed therefore, in the interests of being conservative, that the word "annually" was accidentally omitted and fixed costs will increase 3.8% each year
Health Care Administration A recent change in Health IT architecture or infrastructure is the use of cloud computing. In the present day, cloud computing is having a positive effect on healthcare processes and outcomes and the healthcare organization as a whole through the provision of quality services to patients. To begin with, healthcare organizations have shifted to a digital basis in the contemporary where they gather a great deal of data.
SAC Capital Structure The Sparklin Automotive Company needs to make a capital investment of $3,000,000 to improve its manufacturing facilities. This investment needs to be carefully considered along two dimensions. The first of these is that the company needs to consider the investment from a capital budgeting point-of-view. The second is that the company does not want to change its capital structure as the result of this decision. The current capital
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