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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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To make a capital investment decision, a manager must

  1. a. estimate the quantity and timing of cash flows.
  2. b. assess the risk of the investment.
  3. c. consider the impact of the investment on the firm’s profits.
  4. d. choose a decision criterion to assess viability of the investment (such as payback period or NPV).
  5. e. All of these.

To determine

Identify the points to be considered while making a capital investment decision.

Explanation

Capital Investment decisions:

A capital investment decision is a process to plan, to set goals and priorities, to arrange fund and to use certain criteria to choose a long-term asset. These decisions assist in the selection or rejection of an investment.

a.

The manager must estimate the quantity and timing of cash flow in order to estimate the profitability of an investment. Therefore, option a is relevant but incomplete and thus incorrect.

b.

The level of risk associated with the investment decision must be assessed by the manager before the investment...

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