{"id":733,"date":"2018-04-19T22:42:33","date_gmt":"2018-04-19T22:42:33","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/?post_type=chapter&#038;p=733"},"modified":"2024-04-29T17:39:16","modified_gmt":"2024-04-29T17:39:16","slug":"steps-of-capital-budgeting","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/chapter\/steps-of-capital-budgeting\/","title":{"raw":"Steps of Capital Budgeting","rendered":"Steps of Capital Budgeting"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Discuss the steps in the capital budgeting process<\/li>\r\n<\/ul>\r\n<\/div>\r\nSo let\u2019s say our supervisor comes to us with the following situation: We need to add a product line, and we have three options. Each option requires capital outlay including new equipment and manufacturing space. They all require a quite substantial initial investment. Where do we start?\r\n<div class=\"textbox examples\">\r\n<h3>Watch It<\/h3>\r\nhttps:\/\/youtu.be\/kFyZkXHit_A\r\n\r\n<\/div>\r\nThe first step will be a screening decision. In this step we will look at all of the projects, and determine whether they meet the company\u2019s basic guidelines for consideration. Our company, may for example, require a 20% rate of return on a new investment before it will even be considered as an option. Once we screen all of the potential options, if any meet this guideline, we can move on the the preference decision.\r\n\r\nThe preference decision takes all of the projects that meet the screening process and then decide which to choose. Perhaps, we have three machines available that would all provide us with a 20% rate of return on the investment each year. Now, we need to decide between the three machines, which one to pick!\r\n\r\nWe can use a variety of methods once we get to this point to make our choice!\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Questions<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/65da3972-db1d-472a-9ff7-665212bbb5cd\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Discuss the steps in the capital budgeting process<\/li>\n<\/ul>\n<\/div>\n<p>So let\u2019s say our supervisor comes to us with the following situation: We need to add a product line, and we have three options. Each option requires capital outlay including new equipment and manufacturing space. They all require a quite substantial initial investment. Where do we start?<\/p>\n<div class=\"textbox examples\">\n<h3>Watch It<\/h3>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"What is Capital Budgeting: Introduction - Managerial Accounting video\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/kFyZkXHit_A?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<\/div>\n<p>The first step will be a screening decision. In this step we will look at all of the projects, and determine whether they meet the company\u2019s basic guidelines for consideration. Our company, may for example, require a 20% rate of return on a new investment before it will even be considered as an option. Once we screen all of the potential options, if any meet this guideline, we can move on the the preference decision.<\/p>\n<p>The preference decision takes all of the projects that meet the screening process and then decide which to choose. Perhaps, we have three machines available that would all provide us with a 20% rate of return on the investment each year. Now, we need to decide between the three machines, which one to pick!<\/p>\n<p>We can use a variety of methods once we get to this point to make our choice!<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Questions<\/h3>\n<p>\t<iframe id=\"assessment_practice_65da3972-db1d-472a-9ff7-665212bbb5cd\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/65da3972-db1d-472a-9ff7-665212bbb5cd?iframe_resize_id=assessment_practice_id_65da3972-db1d-472a-9ff7-665212bbb5cd\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-733\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Steps of Capital Budgeting. <strong>Authored by<\/strong>: Freedom Learning Group. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>What is Capital Budgeting: Introduction - Managerial Accounting video. <strong>Authored by<\/strong>: Brian Routh TheAccountingDr. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/kFyZkXHit_A\">https:\/\/youtu.be\/kFyZkXHit_A<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":62559,"menu_order":3,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Steps of Capital Budgeting\",\"author\":\"Freedom Learning Group\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"copyrighted_video\",\"description\":\"What is Capital Budgeting: Introduction - Managerial Accounting video\",\"author\":\"Brian Routh TheAccountingDr\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/kFyZkXHit_A\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"}]","CANDELA_OUTCOMES_GUID":"b63703e3-9864-4662-9923-adc456efd370, 948ab2a5-706a-4262-a054-2ceedf236f4d","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-733","chapter","type-chapter","status-publish","hentry"],"part":114,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/733","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/users\/62559"}],"version-history":[{"count":10,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/733\/revisions"}],"predecessor-version":[{"id":4179,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/733\/revisions\/4179"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/parts\/114"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/733\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/media?parent=733"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapter-type?post=733"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/contributor?post=733"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/license?post=733"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}