A. Capital Budgeting Evaluation Process

1.

2.

3.

4.

5.

B. Cash Payback.

1. Describe __________________________________________________

___________________________________________________________

2. Net annual cash flow is computed by ___________________________

________________________________________________________.

a. Cash Payback Period =

b. The shorter the payback period, the more ___________the investment.

c. The cash payback technique recognizes that:

(1)

(2)

d. In the case of uneven net annual cash flows, the company determines the cash payback period when _____________________________

_____________________________________________________

C. Net Present Value Method.

1.

2.

3.

4. The net present value method involves discounting net cash flows to their present value and then comparing that present value with the capital outlay required by the investment. The difference between these two amounts is referred to as net present value (NPV).

a.

b.

c.

D. Intangible Benefits.

1.

2.

3.

E. Mutually Exclusive Projects.

1. Proposals are often mutually exclusive if _________________________

___________________________________________________________.

2. The profitability index is

a.

b.

c.

d. The higher the profitability index, the more ______________the project.