Time Horizon and Implications

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来自 University of Illinois at Urbana-Champaign 的课程

Managerial Accounting: Tools for Facilitating and Guiding Business Decisions

304 个评分

University of Illinois at Urbana-Champaign

Managerial Accounting: Tools for Facilitating and Guiding Business Decisions

304 个评分

课程 2（共 7 门，Specialization Value Chain Management）

In this course, you will explore how to use accounting to allocate resources and incentivize manager and employee behaviors in using these resources. You will also learn how financial and non-financial accounting information facilitates strategic performance measurement and how to integrate this information to continuously improve strategy. Upon successful completion of this course, you will be able to: • Understand the role of managerial accounting information in common business decisions • Differentiate relevant and irrelevant information • Avoid common pitfalls in business decisions • Prepare a master budget and its key components • Describe the iterative and interrelated nature of budgeting • Evaluate capital investments via a variety of measures • Understand how upper management uses variance analysis • Calculate, interpret, and investigate variances • Understand decentralization and its advantages and disadvantages • Compute and interpret financial performance measures • Communicate the role of non-financial measures and strategic performance measurement systems • Identify issues associated with performance measurement and incentives • Understand the nature and role of subjective performance evaluation This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

从本节课中

Budgeting for Planning and Control

At the heart of an organization’s planning and control function is its budget. In this module, you will explore the purpose of budgeting, the role of managers and employees in budgeting, and related implications. You will also develop an organization’s budget, ultimately understanding the iterative nature among the budget’s key components: the operations, financing, and capital investments budgets.

Capital Budgeting Overview1:48

Example Scenario4:25

Accounting Rate of Return3:38

Time Horizon and Implications4:17

Discounted Cash Flow and Net Present Value7:18

Internal Rate of Return5:41

What We've Learned in Lesson 2.40:46

Module 2 Review0:46

与讲师见面

Gary Hecht, Ph.D.
Associate Professor of Accountancy
Department of Accountancy, College of Business

[ Music ]

>> While the payback period and accounting rate

of return methods have their share of advantages,

there is one more disadvantage that needs to be discussed.

Specifically, both ignore the time value of money.

Now what is the time value of money?

Well, ask yourself this question.

Would you rather receive $1,000 today or one year from now?

Presumably your answer is now.

Why? Because you can use the $1,000 during the coming year

if you were to receive it today.

Whereas in if you had to wait until the end

of the year you wouldn't get to use it.

It wouldn't earn interest or some other return for you.

And when we consider multiple tiers the time value

of money can become quite important.

So let's take a look at our hypothetical comparison

that we've kept on the backburner until now.

Again, we had two projects: A and B.

[ Pause ]

For project A in year zero the initial outflow was $100,000.

And for project B, if we were to pursue that,

the initial outflow was substantially higher.

$250,000. The cash savings or inflows

between the two projects are quite different,

especially when considering their behavior over time.

Project A's cash savings occur quite regularly throughout years

1 through 6.

Project B's cash inflows occur relatively small

in the early years, but substantial in the later years,

especially in that year 6.

Now without taking into account the time value

of money you can see

that project A's net flow is $140,000,

and project B's is higher at $167,000.

But if the time value of money is an important consideration

in here it might be that waiting for that big outflow

over in project B is not worth it.

We have to wait that long to receive that much cash.

It may be that the regular cash inflows associated

with project A given the effect of the time value

of money are more valuable to us as an investor, or as the firm.

So let's talk about discounting cash flows.

Specifically we need to calculate the present value

of future cash flows and that involves the

following parameters.

First of all, we need the amounts.

In our hypothetical example when do these inflows

and outflows occur and how much are they?

We need to understand the notion of time.

Are the two projects or the projects spanned

over multiple years far into the future or is it relatively near?

And, finally, we need to understand the discount rate.

That's the rate in which we discount money received

in the future compared to what we receive currently.

The time and the discount rate yield a factor that allows

for the calculation of the present value

of a dollar received in the future.

The present value factor is 1 divided by a denominator

of 1 plus the rate raised to the power of time.

So in essence if we had a 3 year window

and the discount rate was 10% our factor would be 1 divided

by 1 plus .10, our 10% discount rate, raised to the third power

for the fact that we're talking about 3 years.

[ Pause ]

We'll next turn to some numerical examples to talk

about how the time value of money allows us

to calculate alternative measures for capital budgeting.

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