8. Capital Expense Budget

Question 1

capital expenditures

Answer 1

funds used by a company to acquire or upgrade physical assets such a property, building, or equipment (tangible + intangible)

Question 2

intangible assets

Answer 2

r&d, patents, copyright, trademarks, brand names, franchises

Question 3

discount rate

Answer 3

interest rate in discounted cash flows used to calculate present value of cash flows

Question 4

bad debts

Answer 4

debts that cannot be recovered

Question 5

capital budgeting

Answer 5

deciding whether long-term investments are with pursuing, management plans, evaluates and controls

Question 6

CAPEX decision are important because (4)

Answer 6

1. significant outlay of money and time 2. takes many years 3. often irrevocable 4. can alter the risk of the firm

Question 7

evaluation of investment alternatives (4)

Answer 7

1. npv 2. irr 3. payback period and discounted payback period 4. profitability index

Question 8

NPV formula

Answer 8