Management Uses Several Different Methods in Evaluating Potential Capital Investments

question 79

Essay

Management uses several different methods in evaluating potential capital investments.Identify and briefly discuss the four methods outlined in the text.

---

Definitions:

Estimating Cash Flows

The process of forecasting the amounts of cash that will be received and spent by a business in a future period.

Replacement Projects

Investments undertaken to replace old or damaged assets in order to maintain operational efficiency.

Perpetuity Formulas

Mathematical equations used to calculate the value of payments or cash flows that continue indefinitely.

Terminal Values

The estimated value of an asset at the end of its useful life or an investment at the end of a forecast period.