LEARNING GOALS

354

CAPITAL BUDGETING

CASH FLOWS

CHAPTER

Across the Disciplines WHY THIS CHAPTER MATTERS TO YOU

Accounting:You need to understand capital budgeting cash
flows in order to provide revenue, cost, depreciation, and tax
data for use both in monitoring existing projects and in develop-
ing cash flows for proposed projects.

Information systems:You need to understand capital budget-
ing cash flows in order to maintain and facilitate the retrieval of
cash flow data for both completed and existing projects.

Management:You need to understand capital budgeting cash
flows so that you will understand what cash flows are relevant
in making decisions about proposals for acquiring additional

production facilities, for new products, and for the expansion of

existing product lines.

Marketing:You need to understand capital budgeting cash

flows so that you can make revenue estimates for proposals for

new marketing programs, for new products, and for the expan-

sion of existing product lines.

Operations:You need to understand capital budgeting cash

flows so that you can make cost estimates for proposals

for the acquisition of new equipment and production

facilities.

Calculate the initial investment associated with a

proposed capital expenditure.

Determine relevant operating cash inflows using

the income statement format.

LG6 Find the terminal cash flow.

LG5

LG4

8

Understand the key motives for capital expendi-

ture and the steps in the capital budgeting

process.

Define basic capital budgeting terminology.

Discuss the major components of relevant

cash flows, expansion versus replacement cash

flows, sunk costs and opportunity costs, and

international capital budgeting and long-term

investments.

LG3

LG2

LG1