a.k.a Managerial Accounting or Cost Accounting beermat … de: Bierdeckel, a cardboard sheet to place your drink on so the table does not get wet
How to make a wise decision
- machine lifetime → Depreciation
- consider opportunity costs of investment → interest in slides of week 3
- 2 different machines with different life times (10 vs 8 years)
- what happens when the 8 year machine is out of support?
- do you buy a new one (add to calculations)?
- do you use the old machine?
- do you stop production?
- if you are not sure about an outcome assume the most negative one
- e.g. machine is not worth anything after its lifespan
- Amortization is important
But there is not a single solution…
- it depends…
- what strategy is the company following?
- cash method: Discounting, Net Present Value
- annuity method: Annuity Accounting
- Internal Rate of Return: Newtons Approximation
- rather not use this model, it tends to be misleading
- Dynamic Amortization
- Raising Capital
- Security