Chapter 12 - Strategy and the analysis of capital investments. In this chapter, the learning objectives are: Explain the strategic role of capital-investment analysis, describe how accountants can add value to the capital- budgeting process, provide a general model for determining relevant cash flows associated with capital-expenditure projects, apply discounted cash flow (DCF) decision models for capital-budgeting purposes, | Strategy and the Analysis of Capital Investments Chapter Twelve McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 12-2 Explain the strategic role of capital-investment analysis Describe how accountants can add value to the capital- budgeting process Provide a general model for determining relevant cash flows associated with capital-expenditure projects Apply discounted cash flow (DCF) decision models for capital-budgeting purposes Learning Objectives 12-3 Deal with uncertainty in the capital-budgeting process Discuss and apply other capital-budgeting decision models Identify behavioral issues associated with the capital-budgeting process (Appendix A): Understand and use alternative presentation formats for the asset-replacement decision Learning Objectives (continued) 12-4 (Appendix B): Identify selected advanced considerations in making capital-investment decisions Learning Objectives (continued) 12-5 Introductory Definitions Capital budgeting: Procedures used to identify, select, monitor, and control capital (., long-term) investments Capital investments: Long-term projects involving substantial initial cash outlays followed by a series of future cash returns Capital budget: Part of the organization’s master budget (Chap. 10) that deals with the current period’s planned capital investment outlays 12-6 Introductory Definitions (continued) Discounted cash-flow (DCF) decision models: Decision models (e. g., NPV and IRR) for capital budgeting that explicitly incorporate the time-value-of-money Weighted-average cost of capital (WACC): Under normal circumstances, the discount factor used in DCF capital-budgeting decision models Estimated as a weighted average of the cost of obtaining capital from various sources (., equity and debt) Non-discounted cash flow decision models: Capital budgeting decision models that do not incorporate the time-value-of-money into the analysis of capital investment projects 12-7 Role of . | Strategy and the Analysis of Capital Investments Chapter Twelve McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 12-2 Explain the strategic role of capital-investment analysis Describe how accountants can add value to the capital- budgeting process Provide a general model for determining relevant cash flows associated with capital-expenditure projects Apply discounted cash flow (DCF) decision models for capital-budgeting purposes Learning Objectives 12-3 Deal with uncertainty in the capital-budgeting process Discuss and apply other capital-budgeting decision models Identify behavioral issues associated with the capital-budgeting process (Appendix A): Understand and use alternative presentation formats for the asset-replacement decision Learning Objectives (continued) 12-4 (Appendix B): Identify selected advanced considerations in making capital-investment decisions Learning Objectives (continued) 12-5 Introductory Definitions Capital .
