Reference no: EM132501996

Question 1: Define capital expenditure decisions and capital budgets, and please evaluate investment opportunities using the net present value approach

Point 1: (Davis) Capital expenditure decisions involve acquisition of long-lived assets. As an example, a print shop may want to invest in new printer that offers different options like printing banners, logos, etc. This company will have to make a decision on whether this is a good investment. In other words, will this put them in a financial bind or increase production/sales.

Point 2: Capital budgets is a final list of approved projects. Capital budgeting is a tool companies use to evaluate and/or rank potential capital expenditures or investments that are significant in amount prior to making a decision.

Point 3: As the text reads, it is best to understand the time value of money. "A company should know not only how much cash it receives from or pays for an investment, but also then the cash is received or paid." (page 328). Since money from the future is not worth the same today, it is important to know how to convert future dollars to current or present dollars.