LEARNING GOALS

394

CAPITAL

BUDGETING

TECHNIQUES

CHAPTER

Across the Disciplines WHY THIS CHAPTER MATTERS TO YOU

Accounting:You need to understand capital budgeting tech-
niques in order to help determine the after-tax cash flows asso-
ciated with proposed capital expenditures.

Information systems:You need to understand capital budget-
ing techniques in order to design decision modules that help
reduce the amount of work required to analyze proposed capi-
tal projects.

Management:You need to understand capital budgeting tech-
niques in order to understand the decision criteria used to
accept or reject proposed projects.

Marketing:You need to understand capital budgeting

techniques in order to understand how proposals for new mar-

keting programs for new products, and for the expansion of

existing product lines will be evaluated by the firm’s decision

makers.

Operations:You need to understand capital budgeting tech-

niques in order to understand how proposals for the acquisition

of new equipment and plants will be evaluated by the firm’s

decision makers.

Use net present value profiles to compare NPV

and IRR techniques.

Discuss NPV and IRR in terms of conflicting rank-

ings and the theoretical and practical strengths

of each approach.

LG6

Understand the role of capital budgeting tech- LG5

niques in the capital budgeting process.

Calculate, interpret, and evaluate the payback

period.

Calculate, interpret, and evaluate the net present

value (NPV).

Calculate, interpret, and evaluate the internal rate

of return (IRR).

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LG3

LG2

LG1

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