Identify four reasons that capital budgeting decisions by managers are risky.
Capital expenditures include replacing equipment in order to allow the company to reduce manufacturing costs, while expanding manufacturing production with the end result an increased value to the corporate bottom line. In the manufacture of a new product, much additional cost is marketplace. In order to put a new item out there, we must constantly improve the quality of it, and also the related services which come attached with this new item. With the new product, increases arrive in production costs and the payroll costs might have to increase in direct proportion to this new item.
1. Identify four reasons that capital budgeting decisions by managers are risky.
2. Why is an investment more attractive to management if it has a shorter payback period?
3. Why should managers set the required rate of return higher than the rate at which money can be borrowed when making a typical capital budgeting decision?
4. Why does the use of the accelerated depreciation method (instead of straight line) for income tax reporting increase an investment’s value?
After you’ve completed the questions above, please provide a brief explanation of how this information is important in managerial decision making.
The intent of the Discussion Forum is for the students to engage in the readings with one another. Please note that this activity is interactive.
- All postings must be made between Monday and Sunday. You will receive a zero for late posts.
- Initial post is due by Wednesday. Initial posts are expected to illustrate your understanding of the learning materials assigned for that module. Initial posts must contain references to the textbook, articles, and other peer-reviewed resources to support your answer.
- One reply to the main post of a classmate is due by Sunday. One liners will not be accepted, that is, it is not sufficient to write that you agree or disagree with someone’s argument or like their comments. Provide a rationale for your arguments, be thoughtful when responding, integrate the textbook and related articles (the readings) for support and allow me to hear your respective voice in the discussion format.
- Grading is based on timely and frequent participation, as well as the quality of your responses/comments critique
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