Screening Decisions and Preference Decisions

Screening Decisions and Preference Decisions:

Learning Objectives:

  1. Define, explain and give examples of screening and preference decisions.

Capital budgeting decisions fall into two broad categories:

  1. Screening decisions.

  2. 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:

  1. Capital Budgeting – Definition and Explanation
  2. Typical Capital Budgeting Decisions
  3. Time Value of Money
  4. Screening and Preference Decisions
  5. Present Value and Future Value – Explanation of the Concept
  6. Net Present Value (NPV) Method in Capital Budgeting Decisions
  7. Internal Rate of Return (IRR) Method – Definition and Explanation
  8. Net Present Value (NPV) Method Vs Internal Rate of Return (IRR) Method
  9. Net Present Value (NPV) Method – Comparing the Competing Investment Projects
  10. Least Cost Decisions
  11. Capital Budgeting Decisions With Uncertain Cash Flows
  12. Ranking Investment Projects
  13. Payback Period Method for Capital Budgeting Decisions
  14. Simple rate of Return Method
  15. Post Audit of Investment Projects

  16. Inflation and Capital Budgeting Analysis
  17. Income Taxes in Capital Budgeting Decisions
  18. Review Problem 1: Basic Present Value Computations
  19. Review Problem 2: Comparison of Capital Budgeting Methods
  20. Future Value and Present Value Tables

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