CAPITAL

BUDGETING
EASY
DECISIONS
Ebcas, GROUP
Florencio, 2
Flores, Ginete, Gucor, Heredia,
Hojas, Joson, Lacanaria, Lanticse, Lebaquin,
Magaway, Magbologtong, Milan, Monares

The payback method determines the length of
time needed to recoup an investment. The
following are the strengths of payback method,
except:
a. Simple calculation
b. Screens out many unviable alternatives quickly
c. Considers the time value of money
d. Removes high-risk investments from consideration
c. Considers the time value of money
Numerous businesses must sort through both viable
and unviable possibilities as they are constantly provided
with investment opportunities in order to choose the
greatest feasible investment for business expansion. As a
result, thorough budgeting and analysis are needed. A
corporation may employ a variety of evaluation
techniques with varying inputs and analysis elements
to accomplish their analysis. One method is the Non-time
Value Method, which is frequently used in screening tools
and does not compare the worth of a dollar today to the
value of a dollar in the future.

It is a method that does not consider how
much
a unit of currency will be worth in the future.
A. Time Value Method
B. Money Management
C. Payback Period
D. Non-time Value Method
D. Non-time Value
Method
methods are best used in an initial screening process
when there are many alternatives to choose from.
Two such methods are payback method and
accounting rate of return.

What do you call any ____ value for the capital

asset that needs to be subtracted from the initial
investment before obtaining Accounting Rate of B. Salvage Value
Return?
is the estimated value of an asset at the end of its
A. Partial Value useful life. It represents the amount that a company
could sell the asset for after it has been fully
B. Salvage Value depreciated.
C. Book Value
D. Initial Value
 __________ is a company’s contribution of
c. Capital Investment
funds toward the acquisition of long-term
assets
(sometimes also referred to as capital budgeting) is a
for further growth.
company’s contribution of funds toward the
a. Operating Expense
acquisition of long-lived (long-term or capital) assets
b. Ordinary for further growth. Capital investment decisions
Investment occur on a frequent basis, and it is important for a
company to determine its project needs to
c. Capital Investment establish a path for business development.
d. Asset Budgeting

The following are common measurement methods, b. Net Personal Value

EXCEPT one:
Since there are so many alternative possibilities, a
company will need to establish baseline criteria for
a. Payback Method the investment. Baseline criteria are measurement
b. Net Personal Value methods that can help differentiate among
alternatives. Common measurement methods include
c. Accounting Rate of Return
the payback method, accounting rate of return,
d. Net Present Value net present value, or internal rate of return.
The current value of a single future investment
or B. Present Value
a series of investments for a specified time at a
given interest rate or rates. is the future value of an investment
expressed in today’s value
A. Future Value
B. Present Value
C. Net Present Value

D. Discounted Value

These are series of equal payments A. Annuity

mad The company would be receiving a stream of four
overtime cash flows that are all lump sums (this is one-time
payment or repayment of funds at a particular
point in time). In some situations, the cash flows that
A. Annuity occur each time period are the same amount; in
other
B. Lump sum
words, the cash flows are even each period. These
C. Cash Inflow types of even cash flows occurring at even
intervals, such as once a year, are known as an
D. Annuities Due
annuity.

Net present value (NPV) does not determine the
actual rate of return earned by a project.
a. TRUE
b. FALSE
It helps companies choose between alternatives at
a
particular point in time by determining which
produces the higher NPV.
a. Internal Rate of Return
b. Net Present Value
c. Discounted Cash Flow
d. Time Value-Based
A. TRUE
The internal rate of return (IRR) is the one who’s
responsible for determining the
actual rate of return a project earns.
b. Net Present Value
So to determine the NPV, the initial investment is
subtracted from the present value of cash inflows
and outflows associated with a project at a
required
rate of return. If the outcome is positive, the
company should consider investment. If the
outcome is negative, the company would forgo
investment.
 It determines how long it will take a corporation
to
repay its initial investment.

MODERATE A. Discounted Method

B. Initial Method
C. Paycheck Method
D. Payback Method

D. Payback Method It determines the return on investment

while
The payback method (PM) determines how long it will
take a business to recoup its initial investment. It accounting for changes in net income.
determines how long it will take for either the money
made or the money saved to be higher than or equal
A. Investment Estimate Method
to the project's costs. This can be helpful if a
business's only priority is getting their money back B. Investment in Associate Method
from a project investment as soon as possible.
C. Accounting Rate of Return Method

D. Capital Investment Method

 C. Accounting Rate of Return Method
The return on investment is calculated using the
accounting rate of return (ARR), which takes changes
in net income into account. It illustrates how much
additional revenue the business might generate if
the planned initiative is implemented. The benefit of
this approach is that it examines income, cost savings,
and expenses related to the investment and, in
some situations, can give a more thorough view of
the effect than only concentrating on the cash
flows generated.
Which of the following is not a weakness of internal rate
return under time value-based capital budgeting method:
c. A predetermined rate of
return
is not required
The following are the strengths of net present
value
under time value-based capital budgeting
method except:
a. Acknowledges higher risk investments
b. Comparable future earnings with today's value
c. A predetermined rate of return is not required
d. Allows for a selection of investment
of
a. Difficult to compare alternatives that have varying
investment amounts
b. Does not acknowledge higher risk investments because the
focus is on return rates
c. More difficult calculation than non-time value methods, and
outcome may be uncertain if not using a financial calculator or
spreadsheet program
d. If the time for return on investment is important, IRR will not
place more importance on shorter-term investments
 Preference decision allows companies to remove
alternatives that would be less desirable to pursue given
their inability to meet basic standards while
screening decision compares potential projects that
a. Difficult to compare alternatives that have meet preference decision criteria and will rank the
varying investment amounts alternatives in order of importance, feasibility, or
desirability to differentiate among alternatives.
a. True
b. False
c. Di mo sure
d. All of the above

b. False An operating expense is a regularly-occurring

expense
used to maintain the current operations of the
The screening decision allows companies to remove
company, capital expenditure, on the other hand, is
alternatives that would be less desirable to pursue
the one used to grow the business and produce and
given their inability to meet basic standards. A
produce a future economic benefit.
preference decision compares potential projects
that meet screening decision criteria and will rank the a. True
alternatives in order of importance, feasibility, or b. False
desirability to differentiate among alternatives. c. Di mo sure
d. All of the above
 a. True
It is the process of earning interest on
previous
An operating expense is a regularly-occurring
interest earned, along with the interest earned
expense used to maintain the
current operations of the company, but a capital on the original investment.
expenditure is one used to a. Compounding
grow the business and produce a future economic
b. Pounding
benefit.
c. Ordinary annuity
d. Annuity

Is one in which the payments are made at the end of

each period in equal installments. A future value
a. Compounding ordinary annuity looks at the value of the
current investment in the future, if periodic
Any interest earned during the year will be payments were made throughout the life of
retained until the end of the four-year the series.
period
a. Anniity
and will also earn 10% interest annually.
b. Ordinary annuity
c. Ordinary Compound
d. None of the above
 b. Ordinary annuity
DIFFIC
This is the equal installment/s paid at the
end ULT
of each payment period within the series

Cash Flow
Depending on whether annual cash flows are even or
uneven, the payback period is determined. Cash flow
As a result of a business operation, it is money is the amount of money that the company receives
that enters or leaves the company. or
releases as a result of its operations. The company's
ability to pay off long-term debt, as well as its
liquidity and growth potential, will be estimated by
cash flow. The Statement of Cash Flows therefore
shows cash flows.

What do you call the minimal rate of return needed
for considering alternatives for further evaluation?
It determines the minimum expected returns on
a project given the value of cash flow expectation
and the initial investment
Hurdle Rate
A hurdle rate is the minimal rate of return on
an investment necessary to evaluate an option for
further analysis. The corporation uses this
information to decide whether to consider
the investment or not.
INTERNAL RATE OF RETURN
The Internal Rate of Return model allows for the
comparison of profitability or growth potential among
alternatives. All external factors, such as inflation, are
removed from calculation, and the project with the highest
return rate percentage is considered for investment. Internal
Rate of Return (IRR) is the discounted rate (interest rate)
point at which Net Present Value (NPV) equals zero. In other
words, the IRR is the point at which the present value cash
inflows equal the initial investment cost. To consider
investment, IRR needs to meet or exceed the required rate of
return for the investment type. If IRR does not meet the
required rate of return, the company will forgo investment.
 TIME VALUE-BASED

It is a capital budgeting method that is best used best used after an initial screening process, when a
after an initial screening process, when a company is company is choosing between few alternatives.
choosing between few alternatives.

ANNUITIES DUE
With annuities dues, the cash flow occurs at the start
of the period. The main difference between an
Equal installments paid at the beginning of each ordinary annuity and an annuity due is in the
payment period within payment
the series schedule. With an ordinary annuity, payments are
evenly spaced out over time, with the first payment
due at the end of the period. With an annuity due,
payments are unevenly spaced out over time, with
the first payment made immediately at the start
of the period.
 LUMP SUM

A single payment of money, as opposed to a

One-time payment or repayment of funds at a series of payments made over time (such as an
particular point in time annuity).

Determine capital needs for both new

and existing projects.

There are 5 steps in the process for capital decision-

What is the first step in the process for capital making and the first one is to determine capital
decision-making? needs
for both new and existing projects, wherein the
company must first determine its needs by deciding
what capital improvements
require immediate attention.

It is the third step in the process for capital decision-
making wherein it establishes measurement methods
that can help differentiate among alternatives.
A WARM
THANK YOU
TO ALL OF YOU!
Establish baseline criteria for
alternatives.
The third step in the process for capital decision
making is to establish baseline criteria for
alternatives wherein it establishes
measurement
methods that can help differentiate among
alternatives