Screening Decisions and Preference Decisions
Screening Decisions and Preference Decisions:
Learning Objectives:
- Define, explain and give examples of screening and preference decisions.
Capital budgeting decisions fall into two broad categories:
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Screening decisions.
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Preference decisions.
Screening Decisions – Definition and Explanation:
Screening decisions relate to whether a proposed project meets some preset standard of acceptance. For example, a firm may have a policy of accepting projects only if they promise a retune of, say, 20% on the investment. The required rate of return is the minimum rate of return a project must yield to be acceptable.
Preference Decisions – Definition and Explanation:
Preference decisions relate to selecting from among several competing courses of action. To illustrate, a firm may be considering several different machines to replace an existing machine on the assembly line. The choice of which machine to purchase is a preference decisions.
You may also be interested in other articles from “capital budgeting decisions” chapter:
- Capital Budgeting – Definition and Explanation
- Typical Capital Budgeting Decisions
- Time Value of Money
- Screening and Preference Decisions
- Present Value and Future Value – Explanation of the Concept
- Net Present Value (NPV) Method in Capital Budgeting Decisions
- Internal Rate of Return (IRR) Method – Definition and Explanation
- Net Present Value (NPV) Method Vs Internal Rate of Return (IRR) Method
- Net Present Value (NPV) Method – Comparing the Competing Investment Projects
- Least Cost Decisions
- Capital Budgeting Decisions With Uncertain Cash Flows
- Ranking Investment Projects
- Payback Period Method for Capital Budgeting Decisions
- Simple rate of Return Method
- Inflation and Capital Budgeting Analysis
- Income Taxes in Capital Budgeting Decisions
- Review Problem 1: Basic Present Value Computations
- Review Problem 2: Comparison of Capital Budgeting Methods
- Future Value and Present Value Tables
Other Related Accounting Articles:
- Future Value and Present Value Tables
- Review Problem 2: Comparison of Capital Budgeting Methods
- Capital Budgeting Decisions
- Simple Rate of Return Method
- Review Problem 1: Basic Present Value
- Present Value and Future Value – Explanation of the Concept
- Income Tax and Capital Budgeting Decisions
- Profitability Index (PI)
- Capital Budgeting Definition
- Capital Gearing Ratio
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