Q.1 Our textbook and lesson discuss some considerations that should be taken into account when doing capital budgeting: incremental earnings, interest expenses, taxes, opportunity costs, externalities, sunk costs, cannibalization or erosion, depreciation, salvage value, and others. For your first post, explain in detail what defines capital budgeting. Then explain how two of the considerations above affect capital budgeting.
Q.2 Write reply for this article(Weitt)
Capital budgeting is defined as the “process a business undertakes to evaluate potential major projects or investments” (Kenton, 2022). A prime example that uses capital budgeting is constructions or other big investments. A capital budget is required prior to the determination on whether or not that project will be either approved or denied. Capital budgeting allows for an overview of the project’s cash inflows and outflows, which will then be able to determine whether or not the “benchmark” is met by the expected return (Kenton, 2022). The major different methods of capital budgeting are discounted cash flow, pay back, throughput analyses.
Opportunity cost represents the loss of alternatives when one option is chosen or no action is taken (Higgins, 2021). With opportunity costs, they can’t be seen, in addition, are not included within financial reports. This causes for opportunity cost to be forgotten about when figuring out the capital budget. A reason why opportunity costs are unseen to begin with is because they are considered to be implicit costs (Higgins, 2021).
Salvage value is defined as the “estimated resale value of an asset at the end of its useful life” (Bragg, 2021). To determine the salvage value, you have to subtract it from the cost of a fixed asset. By doing this, you will be able to figure out the amount of the asset cost that will be depreciated (Bragg, 2021). When creating a budget thinking about how much money would be invested into something and at what rate it would depreciate is important to think about. This type of value is found on the balance sheet.
References:
Bragg, S. (2021, July 15). Salvage value definition. AccountingTools. Retrieved from https://www.accountingtools.com/articles/what-is-salvage-value.html
Higgins, S. (2021, December 13). Sunk cost vs opportunity cost: What's the difference? PLANERGY Software. Retrieved from https://planergy.com/blog/sunk-cost-vs-opportunity-cost/
Kenton, W. (2022, March 10). What is capital budgeting? Investopedia. Retrieved from https://www.investopedia.com/terms/c/capitalbudgeting.asp
Q.1
Our textbook and lesson discuss some considerations that should be taken into
account when doing capital budgeting: incremental earnings, interest expenses, taxes,
opportunity costs, externalities, sunk costs, cannibalization or erosion, depreciation,
salv
age value, and others. For your first post, explain in detail what defines capital
budgeting. Then explain how two of
the considerations above affect capital budgeting
.
Q.2 Write repl
y for this articl
e
(W
e
itt)
Capital budgeting is defined as the “process a business undertakes to evaluate potent
ial
major projects or investments” (Kenton, 2022). A prime example that uses capital
budgeting is constructions or other big investments. A capital budget is required prior to
the determination on whether or not that project will be either approved or deni
ed.
Capital budgeting allows for an overview of the project’s cash inflows and outflows,
which will then be able to determine whether or not the “benchmark” is met by the
expected return (Kenton, 2022). The major different methods of capital budgeting are
discounted cash flow, pay back, throughput analyses.
Opportunity cost represents the loss of alternatives when one option is chosen or no
action is taken (Higgins, 2021). With opportunity costs, they can’t be seen, in addition,
are not included within fina
ncial reports. This causes for opportunity cost to be forgotten
about when figuring out the capital budget. A reason why opportunity costs are unseen
to begin with is because they are considered to be implicit costs (Higgins, 2021).
Salvage value is define
d as the “estimated resale value of an asset at the end of its
useful life” (Bragg, 2021). To determine the salvage value, you have to subtract it from
the cost of a fixed asset. By doing this, you will be able to figure out the amount of the
asset cost th
at will be depreciated (Bragg, 2021). When creating a budget thinking
about how much money would be invested into something and at what rate it would
depreciate is important to think about. This type of value is found on the balance sheet.
References:
Brag
g, S. (2021, July 15).
Salvage value definition
. AccountingTools. Retrieved from
https://www.accountingtools.com/articles/what
–
is
–
salvage
–
value.html
Higgins, S. (2021, December 13).
Sunk cost vs opportunity cost: What's the
difference?
PLANERGY Software. R
etrieved from https://planergy.com/blog/sunk
–
cost
–
vs
–
opportunity
–
cost/
Kenton, W. (2022, March 10).
What is capital budgeting?
Investopedia. Retrieved from
https://www.investopedia.com/terms/c/capitalbudgeting.asp
Q.1 Our textbook and lesson discuss some considerations that should be taken into
account when doing capital budgeting: incremental earnings, interest expenses, taxes,
opportunity costs, externalities, sunk costs, cannibalization or erosion, depreciation,
salvage value, and others. For your first post, explain in detail what defines capital
budgeting. Then explain how two of the considerations above affect capital budgeting.
Q.2 Write reply for this article(Weitt)
Capital budgeting is defined as the “process a business undertakes to evaluate potential
major projects or investments” (Kenton, 2022). A prime example that uses capital
budgeting is constructions or other big investments. A capital budget is required prior to
the determination on whether or not that project will be either approved or denied.
Capital budgeting allows for an overview of the project’s cash inflows and outflows,
which will then be able to determine whether or not the “benchmark” is met by the
expected return (Kenton, 2022). The major different methods of capital budgeting are
discounted cash flow, pay back, throughput analyses.
Opportunity cost represents the loss of alternatives when one option is chosen or no
action is taken (Higgins, 2021). With opportunity costs, they can’t be seen, in addition,
are not included within financial reports. This causes for opportunity cost to be forgotten
about when figuring out the capital budget. A reason why opportunity costs are unseen
to begin with is because they are considered to be implicit costs (Higgins, 2021).
Salvage value is defined as the “estimated resale value of an asset at the end of its
useful life” (Bragg, 2021). To determine the salvage value, you have to subtract it from
the cost of a fixed asset. By doing this, you will be able to figure out the amount of the
asset cost that will be depreciated (Bragg, 2021). When creating a budget thinking
about how much money would be invested into something and at what rate it would
depreciate is important to think about. This type of value is found on the balance sheet.
References:
Bragg, S. (2021, July 15). Salvage value definition. AccountingTools. Retrieved from
https://www.accountingtools.com/articles/what-is-salvage-value.html
Higgins, S. (2021, December 13). Sunk cost vs opportunity cost: What's the
difference? PLANERGY Software. Retrieved from https://planergy.com/blog/sunk-cost-
vs-opportunity-cost/
Kenton, W. (2022, March 10). What is capital budgeting? Investopedia. Retrieved from
https://www.investopedia.com/terms/c/capitalbudgeting.asp