What are the two most important factors an accountant must estimate in the capital investment decision?
Determine the two most important factors an accountant should take into consideration while making an investment decision.
Explanation of Solution
Capital investment decision:
Capital investment decisions are the decisions taken by the management with respect to the procurement of capital assets.
Two important things to take into consideration:
The timing of the investment is very important for the decision related to capital investment. The amount invested will remain invested for a specific duration. The opportunity cost and the risk involved is present in having the funds tied up in any capital investment. Hence, the timing and the amount of the project both are taken into consideration for determining the value of the project.
Want to see more full solutions like this?
Chapter A Solutions
FUNDAMENTALS OF...(LL)-W/ACCESS>IP<
- What are the principal objections to the use of the average rate of return method in evaluating capital investment proposals?arrow_forward(1) What are the three types of risk that are relevant in capital budgeting? (2) How is each of these risk types measured, and how do they relate to one another? (3) How is each type of risk used in the capital budgeting process?arrow_forwardThe third step for making a capital investment decision is to establish baseline criteria for alternatives. Which of the following would not be an acceptable baseline criterion? A. payback method B. accounting rate of return C. internal rate of return D. inventory turnoverarrow_forward
- To make a capital investment decision, a manager must a. estimate the quantity and timing of cash flows. b. assess the risk of the investment. c. consider the impact of the investment on the firms profits. d. choose a decision criterion to assess viability of the investment (such as payback period or NPV). e. All of these.arrow_forwardWhat are the major disadvantages of the use of the internal rate of return method of analyzing capital investment proposals?arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning