Chapter 12
Capital Budgeting
Decisions
McGraw-Hill /Irwin © The McGraw-Hill Companies, Inc., 2007
,Typical Capital Budgeting Decisions
Plant expansion
Equipment selection Equipment replacement
Lease or buy Cost reduction
12-2
,Typical Capital Budgeting Decisions
Capital budgeting tends to fall into two broad
categories . . .
Screening decisions. Does a proposed project meet
some present standard of acceptance?
Preference decisions. Selecting from among several
competing courses of action.
12-3
, Time Value of Money
A dollar today is worth
more than a dollar a year
from now. Therefore,
investments that promise
earlier returns are
preferable to those that
promise later returns.
12-4
Capital Budgeting
Decisions
McGraw-Hill /Irwin © The McGraw-Hill Companies, Inc., 2007
,Typical Capital Budgeting Decisions
Plant expansion
Equipment selection Equipment replacement
Lease or buy Cost reduction
12-2
,Typical Capital Budgeting Decisions
Capital budgeting tends to fall into two broad
categories . . .
Screening decisions. Does a proposed project meet
some present standard of acceptance?
Preference decisions. Selecting from among several
competing courses of action.
12-3
, Time Value of Money
A dollar today is worth
more than a dollar a year
from now. Therefore,
investments that promise
earlier returns are
preferable to those that
promise later returns.
12-4
