5. What are the basic investment rules? If value >= price buy If expected return >= required return, buy


 Logan Booker
 1 years ago
 Views:
Transcription
1 BUA321 Chapter 10 Class Notes Capital Budgeting Techniques 1. What kinds of projects are analyzed with capital budgeting? Expansion (easiest to forecast) Replacement (more complicated) We must forecast cashflows with and without a project Others (nonrevenue) 2. What is meant by unlimited funds? We assume unlimited funds. For most companies this is a fact, but not assumed by management For small companies, funds are scarce. 3. Describe mutually exclusive projects. Accept one; reject others Most projects start as mutually exclusive They end up as independent 4. What is the goal of the financial manager? Wealth maximization 5. What are the basic investment rules? If value >= price buy If expected return >= required return, buy Techniques 6. What does payback period tell us? Time to recover investment Very simple technique (sometimes referred to as unsophisticated) Who uses this type of technique? 7. Why is NPV the superior technique for analyzing projects? It directly measures t5he change in wealth. Not a correct thing, but can think that if you divided NPV by the number of shares, that would approximate the increase in wealth Show how NPV is really Investment Rule #1
2 8. Describe the profitability index. Show how PI is really Investment rule #1 Shows a bang for the buck picture Useful in breaking ties. It can show the best way to manage resources. 9. Economic Value added a Describe IRR. This is the expected return. If you buy the project and the cash flows occur, this is the average return per period. Investment Rule # What can cause techniques to provide conflicting solutions? Time Cash flow magnitude Cash flow timing Reinvestment assumption 12. What methods are generally used by companies? It does not cost more to do them all. Just formulas. NPV is the best (theoretically) IRR is preferred (easier to understand)
3 13. Calculate the capital budgeting solutions for the following techniques: 1. Payback 2. NPV 3. Profitability Index 4. IRR b. The company has decided to purchase a new asset. The expected cost of the project is $195,000. The cost of financing projects is 13%. The expected cash flows follow: 1. 1 $40, $60, $85, $70, $50,000 Investment (CF0) $195,000 negative CF1 $40,000 CF2 $60,000 CF3 $85,000 CF4 $70,000 CF5 $50,000 CF6 CF7 CF8 Payback Period Discounted Payback Net Present Value $16, IRR % Modified IRR 9.359% Profitability Index 1.084
4 14. The company in problem 13 is considering another project. This one costs $400,000. The cost of financing is the same. The forecasted cash flows are below $70, $100, $120, $145, $100, $80, $70, Using the projects in problems 13 and 14 with the techniques, decide which projects you would do? First, assume both projects are independent. Next, assume they are mutually exclusive. Independent do them both Mutually exclusive project in 14 16) Use the two projects and create the NPV profiles for the projects.
5 Also look at CB: Project Analysis worksheet
6 Complete the following table using the data in this table. 75 points Project A 12% Project B 12% Project C 12%
7 Project A Project B Project C Payback rule Discounted payback rule Discount rate 12% 12% 12% Payback Discounted Payback NPV 6,862 28,991 9,299 IRR PI Accept if independent? Yes / no Payback Yes Yes Yes Discounted Payback no Yes NPV Yes IRR Yes PI Yes Best if mutually exclusive (mark ) Payback Discounted Payback NPV IRR PI
8 Insert the data into the spreadsheet CB:NPV Profile Copy and paste the net Present Value Profile with all three projects. (10) What does the profile illustrate?
9 Insert projects A and C into the worksheet CB Project Analysis (10 points) Which project is preferable? Insert projects B and C into the worksheet CB Project Analysis (10 points) Which project is preferable?
Chapter 7: Net Present Value and Other Investment Criteria
FIN 301 Class Notes Chapter 7: Net Present Value and Other Investment Criteria Project evaluation involves: 1 Estimating the cash flows associated with the investment project (ch. 8) 2 Determining the
More informationChapter 10. Capital Budgeting Techniques. Copyright 2012 Pearson Prentice Hall. All rights reserved.
Chapter 10 Capital Budgeting Techniques Copyright 2012 Pearson Prentice Hall. All rights reserved. Overview of Capital Budgeting Capital budgeting is the process of evaluating and selecting longterm investments
More informationWhy Use Net Present Value? The Payback Period Method The Discounted Payback Period Method The Average Accounting Return Method The Internal Rate of
1 Why Use Net Present Value? The Payback Period Method The Discounted Payback Period Method The Average Accounting Return Method The Internal Rate of Return Problems with the IRR Approach The Profitability
More informationCapital Budgeting: Decision. Example. Net Present Value (NPV) FINC 3630 Yost
Capital Budgeting: Decision Criteria Example Consider a firm with two projects, A and B, each with the following cash flows and a 10 percent cost of capital: Project A Project B Year Cash Flows Cash Flows
More informationChapter 9. Capital Budgeting Techniques
Chapter 9 Capital Budgeting Techniques 1 Learning Outcomes Chapter 9 Describe the importance of capital budgeting decisions and the general process that is followed when making investment (capital budgeting)
More informationChapter 2: Capital Budgeting Techniques
Chapter 2: Introduction 2.1 Introduction In order to assess the feasibility of any investment project, some capital budgeting techniques should be used to evaluate that project. This part illustrates the
More informationBS2551 Money Banking and Finance
S2551 Money anking and Finance Capital udgeting Capital budgeting techniques are decision rules used by managers when undertaking investment decisions. The best techniques should satisfy the following
More informationNet Present Value (NPV)
Investment Criteria 208 Net Present Value (NPV) What: NPV is a measure of how much value is created or added today by undertaking an investment (the difference between the investment s market value and
More informationNet present value is the difference between a project s value and its costs.
1 2 Net present value is the difference between a project s value and its costs. We need to calculate the Present Value of future cash flows (discounted by the opportunity cost of capital) and subtract
More informationLecture 7  Capital Budgeting: Decision Criteria
Lecture 7  Capital Budgeting: Decision Criteria What is Capital Budgeting? Analysis of potential projects. Longterm decisions; involve large expenditures. Very important to a firm s future. The Ideal
More informationFinance for Cultural Organisations Lecture 7. Net Present Value and Other Investment Criteria
Finance for Cultural Organisations Lecture 7. Net Present Value and Other Investment Criteria Lecture 6: Net Present Value and Other Investment Criteria Be able to compute payback and discounted payback
More informationChapter 5 Net Present Value and Other Investment Rules
University of Science and Technology Beijing Dongling School of Economics and management Chapter 5 Net Present Value and Other Investment Rules Oct. 2012 Dr. Xiao Ming USTB 1 Key Concepts and Skills Be
More information$1,300 + 1,500 + 1,900 = $4,700. in cash flows. The project still needs to create another: $5,500 4,700 = $800
1. To calculate the payback period, we need to find the time that the project has recovered its initial investment. After three years, the project has created: $1,300 + 1,500 + 1,900 = $4,700 in cash flows.
More informationAnswers to Concepts Review and Critical Thinking Questions
Answers to Concepts Review and Critical Thinking Questions 1. A payback period less than the project s life means that the NPV is positive for a zero discount rate, but nothing more definitive can be said.
More informationChapter 10. What is capital budgeting? Topics. The Basics of Capital Budgeting: Evaluating Cash Flows
Chapter 10 The Basics of Capital Budgeting: Evaluating Cash Flows 1 Topics Overview and vocabulary Methods NPV IRR, MIRR Profitability Index Payback, discounted payback Unequal lives Economic life 2 What
More informationOklahoma State University Spears School of Business. NPV & Other Rules
Oklahoma State University Spears School of Business NPV & Other Rules Slide 2 Why Use Net Present Value? Accepting positive NPV projects benefits shareholders. NPV uses cash flows NPV uses all the cash
More informationCHAPTER 10 & 11 The Basics of Capital Budgeting & Cash Flow Estimation
CHAPTER 10 & 11 The Basics of Capital Budgeting & Cash Flow Estimation Should we build this plant? 101 Capital Budgeting Overview Project Classifications Analysis Methods/Decision Rules Comparison of
More informationChapter 11. Investment Decision Criteria. Copyright 2011 Pearson Prentice Hall. All rights reserved.
Chapter 11 Investment Decision Criteria Chapter 11 Contents Learning Objectives Principles Used in This Chapter 1. An Overview of Capital Budgeting 2. Net Present Value 3. Other Investment Criteria 4.
More informationAnswers to WarmUp Exercises
Answers to WarmUp Exercises E101. Answer: E102. Answer: Payback period The payback period for Project Hydrogen is 4.29 years. The payback period for Project Helium is 5.75 years. Both projects are acceptable
More informationChapter 9: Net Present Value and Other Investment Criteria. Faculty of Business Administration Lakehead University Spring 2003 May 20, 2003
Chapter 9: Net Present Value and Other Investment Criteria Faculty of Business Administration Lakehead University Spring 2003 May 20, 2003 Outline 9.1 Net Present Value 9.2 The Payback Rule 9.3 The Average
More informationInvestment Decisions and Capital Budgeting
Investment Decisions and Capital Budgeting FINANCE 350 Global Financial Management Professor Alon Brav Fuqua School of Business Duke University 1 Issues in Capital Budgeting: Investment How should capital
More informationCapital Budgeting Tools. Chapter 11. Capital Budgeting. Types of Capital Budgeting Projects. The Basics of Capital Budgeting: Evaluating Cash Flows
Capital Budgeting Tools () Payback Period (a) Discounted Payback Period Chapter The Basics of Capital Budgeting: Evaluating s () Net Present Value (NPV) (a) Profitability Index (PI) () Internal Rate of
More informationChapter 13 The Basics of Capital Budgeting Evaluating Cash Flows
Chapter 13 The Basics of Capital Budgeting Evaluating Cash Flows ANSWERS TO SELECTED ENDOFCHAPTER QUESTIONS 131 a. The capital budget outlines the planned expenditures on fixed assets. Capital budgeting
More informationNPV and Other Investment Criteria
Chapter 8 NPV and Other Investment Criteria CAPITAL BUDGETING TERMS Capital budgeting is where we start to pull all of the tools and techniques we ve learned so far together (TVM, cash flow analysis, etc.)
More informationCapital Budgeting Capital Budgeting The process by which a business
Capital Budgeting 1 Capital Budgeting The process by which a business chooses which investments to make in capital equipment 2 Capital Investments Money markets: Short term Capital markets: Long term Capital
More informationUnderstanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions
Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Chapter 8 Capital Budgeting Concept Check 8.1 1. What is the difference between independent and mutually
More informationCFA Level I. Study Session 11. Introduction. Dividends and Share Repurchases: Basics Working Capital Management The Corporate Governance
CFA Level I Study Session 11 Reading 36 Reading 37 Reading 38 Reading 39 Reading 40 Reading 41 Introduction Capital Budgeting Cost of Capital Measures of Leverage Dividends and Share Repurchases: Basics
More informationCHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA
CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Answers to Concepts Review and Critical Thinking Questions 1. A payback period less than the project s life means that the NPV is positive for
More informationCAPITAL BUDGETING. Net Present Value and Other Investment Criteria
CAPITAL BUDGETING Net Present Value and Other Investment Criteria Net Present Value (NPV) Net present value is the difference between an investment s market value (in today s dollars) and its cost (also
More informationNPV Versus IRR. W.L. Silber 1000 0 0 +300 +600 +900. We know that if the cost of capital is 18 percent we reject the project because the NPV
NPV Versus IRR W.L. Silber I. Our favorite project A has the following cash flows: 1 + +6 +9 1 2 We know that if the cost of capital is 18 percent we reject the project because the net present value is
More informationLecture 5 (Chapter 9) Investment Criteria. Some Problems
Lecture 5 (Chapter 9) Investment Criteria Up to now, we have analyzed how to finance a firm (capital structure) Today we switch to analyzing what to do with the money once we ve got it (capital budgeting
More informationIn Feb. 2000, Corning Inc., announced plans to spend $750 million to expand by 50% its manufacturing capacity of optical fiber, a crucial component
CAPITAL BUDGETING In Feb. 2000, Corning Inc., announced plans to spend $750 million to expand by 50% its manufacturing capacity of optical fiber, a crucial component of today s high speed communications
More informationCorporate Finance. Slide 1 咨询热线 : 学习平台 : lms.finance365.com
Corporate Finance Capital Budgeting Cost of Capital Measures of Leverage Dividends and Share Repurchases Working capital management Corporate Governance of Listed Companies Slide 1 Capital Budgeting Slide
More informationProject Valuation for Managers
Project Valuation for Managers An Essential Skill Corporate Finance By Cameron Hall Key Messages The job of managers is to create value. Value in a firm comes from two sources: current operations and new
More informationCHAPTER 8 CAPITAL BUDGETING DECISIONS
CHAPTER 8 CAPITAL BUDGETING DECISIONS Q1. What is capital budgeting? Why is it significant for a firm? A1 A capital budgeting decision may be defined as the firm s decision to invest its current funds
More informationWHAT IS CAPITAL BUDGETING?
WHAT IS CAPITAL BUDGETING? Capital budgeting is a required managerial tool. One duty of a financial manager is to choose investments with satisfactory cash flows and rates of return. Therefore, a financial
More informationAlternative Investment Rules. Data for Examples
Alternative Investment Rules (Text reference: Chapter 6) Topics data for examples net present value (NPV) rule internal rate of return (IRR) rule payback rule discounted payback rule average accounting
More informationChapter 9 Capital Budgeting Decision Models
Chapter 9 Capital Budgeting Decision Models LEARNING OBJECTIVES (Slide 92) 1. Explain capital budgeting and differentiate between shortterm and longterm budgeting decisions. 2. Explain the payback model
More informationEconomic Feasibility Studies
Economic Feasibility Studies ١ Introduction Every long term decision the firm makes is a capital budgeting decision whenever it changes the company s cash flows. The difficulty with making these decisions
More informationNet Present Value and Other Investment Criteria
Net Present Value and Other Investment Criteria Topics Covered Net Present Value Other Investment Criteria Mutually Exclusive Projects Capital Rationing Net Present Value Net Present Value  Present value
More informationInvestment Decision Analysis
Lecture: IV 1 Investment Decision Analysis The investment decision process: Generate cash flow forecasts for the projects, Determine the appropriate opportunity cost of capital, Use the cash flows and
More information1) quantifies in dollar terms how stockholder wealth will be affected by undertaking a project under consideration.
Questions in Chapter 9 concept.qz 1) quantifies in dollar terms how stockholder wealth will be affected by undertaking a project under consideration. [A] Discounted payback analysis [B] The average accounting
More informationCARNEGIE MELLON UNIVERSITY CIO INSTITUTE
CARNEGIE MELLON UNIVERSITY CIO INSTITUTE CAPITAL BUDGETING BASICS Contact Information: Lynne Pastor Email: lp23@andrew.cmu.edu RELATED LEARNGING OBJECTIVES 7.2 LO 3: Compare and contrast the implications
More informationCapital Budgeting. Finance 100
Capital Budgeting Finance 100 Prof. Michael R. Roberts 1 Topic Overview How should capital be allocated?» Do I invest / launch a product / buy a building / scrap / outsource...» Should I acquire / sell
More informationChapter 11. Investment Decision Criteria. Copyright 2011 Pearson Prentice Hall. All rights reserved.
Chapter 11 Investment Decision Criteria Chapter 11 Contents Learning Objectives Principles Used in This Chapter 1. An Overview of Capital Budgeting 2. Net Present Value 3. Other Investment Criteria 4.
More informationUSQ UNIVERSITY OF SOUTHERN QUEENSLAND
USQ UNIVERSITY OF SOUTHERN QUEENSLAND MBA  ACC5502 Accounting & Financial Management / S1 / 2015 M B G Wimalarathna [FCA, FCMA, MCIM, FMAAT, MCPM, (MBA PIM/USJ)] Introduction Decision on long term investments
More informationChapter 7. Net Present Value and Other Investment Criteria
Chapter 7 Net Present Value and Other Investment Criteria 72 Topics Covered Net Present Value Other Investment Criteria Mutually Exclusive Projects Capital Rationing 73 Net Present Value Net Present
More informationCapital Budgeting Techniques: Certainty and Risk
Capital Budgeting Techniques: Certainty and Risk 340 LG1 LG2 LG3 LG4 LG5 LG6 Chapter 9 LEARNING GOALS Calculate, interpret, and evaluate the payback period. Apply net present value (NPV) and internal rate
More informationKey Concepts and Skills. Net Present Value and Other Investment Rules. http://www2.gsu.edu/~fnccwh/pdf/ rwjch5v3overview.pdf.
McGrawHill/Irwin Net Present Value and Other Investment Rules 91 http://www2.gsu.edu/~fnccwh/pdf/ rwjch5v3overview.pdf Copyright 2010 by Charles Hodges and the McGrawHill Companies, Inc. All rights
More informationChapter 7. What s next? Topic Overview. Net Present Value & Other Investment Criteria
What s next? Capital Budgeting: involves making decisions about real asset investments. Chapter 7: Net Present Value and Other Investment Criteria Chapter 8: Estimating cash flows for a potential investment.
More information(Relevant to AAT Examination Paper 4 Business Economics and Financial Mathematics)
Capital Budgeting: Net Present Value vs Internal Rate of Return (Relevant to AAT Examination Paper 4 Business Economics and Financial Mathematics) Y O Lam Capital budgeting assists decision makers in a
More informationCapital Investment Appraisal Techniques
Capital Investment Appraisal Techniques To download this article in printable format click here A practising Bookkeeper asked me recently how and by what methods one would appraise a proposed investment
More informationUSQ UNIVERSITY OF SOUTHERN QUEENSLAND
USQ UNIVERSITY OF SOUTHERN QUEENSLAND MBA  ACC5502 Accounting & Financial Management / S1 / 2013 M B G Wimalarathna (ACA, ACMA, ACIM, SAT, ACPM)(MBA USJ/PIM) Introduction Key management personnel of an
More informationCHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA
CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Basic 1. To calculate the payback period, we need to find the time that the project has recovered its initial investment. After two years, the
More informationSolutions to Chapter 8. Net Present Value and Other Investment Criteria
Solutions to Chapter 8 Net Present Value and Other Investment Criteria. NPV A = $00 + [$80 annuity factor (%, periods)] = $00 $80 $8. 0 0. 0. (.) NPV B = $00 + [$00 annuity factor (%, periods)] = $00 $00
More informationExercise #3  The Basics of Capital Budgeting
Exercise #3  The Basics of Capital Budgeting 19. Assume that the economy is in a mild recession, and as a result interest rates and money costs generally are relatively low. The WACC for two mutually
More informationEvaluating Mutually Exclusive Projects with Capital Budgeting Techniques. (Case Study)
Evaluating Mutually Exclusive Projects with Capital Budgeting Techniques (Case Study) Introduction Michael Strahan had started working for a mining company. His company is evaluating two projects: One
More informationCHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA
CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA 1. To calculate the payback period, we need to find the time that the project has recovered its initial investment. After three years, the project
More informationThis is Capital Budgeting Decision Making, chapter 13 from the book Finance for Managers (index.html) (v. 0.1).
This is Capital Budgeting Decision Making, chapter 13 from the book Finance for Managers (index.html) (v. 0.1). This book is licensed under a Creative Commons byncsa 3.0 (http://creativecommons.org/licenses/byncsa/
More informationCapital Budgeting. Financial Modeling Templates
Financial Modeling Templates http://spreadsheetml.com/finance/capitalbudgeting.shtml Copyright (c) 20092014, ConnectCode All Rights Reserved. ConnectCode accepts no responsibility for any adverse affect
More informationPlanning for Capital Investments
121 Planning for Capital Investments Managerial Accounting Fifth Edition Weygandt Kimmel Kieso 122 study objectives 1. Discuss capital budgeting evaluation, and explain inputs used in capital budgeting.
More informationBUSINESS FINANCE (FIN 312) Spring 2009
BUSINESS FINANCE (FIN 31) Spring 009 Assignment Instructions: please read carefully You can either do the assignment by yourself or work in a group of no more than two. You should show your work how to
More informationMeasuring Investment Returns
Measuring Investment Returns Aswath Damodaran Stern School of Business Aswath Damodaran 156 First Principles Invest in projects that yield a return greater than the minimum acceptable hurdle rate. The
More informationFor 9.220, Term 1, 2002/03 02_Lecture9.ppt. Introduction Problems with IRR Special Considerations for DCF Techniques
Capital Budgeting For 9.22, Term, 22/3 2_Lecture9.ppt Outline Introduction Problems with IRR Special Considerations for DCF Techniques Mutually Exclusive Projects Capital Rationing NonDiscounted Cash
More informationReview Solutions FV = 4000*(1+.08/4) 5 = $4416.32
Review Solutions 1. Planning to use the money to finish your last year in school, you deposit $4,000 into a savings account with a quoted annual interest rate (APR) of 8% and quarterly compounding. Fifteen
More informationFinancial and Cash Flow Analysis Methods. www.projectfinance.com
Financial and Cash Flow Analysis Methods Financial analysis Historic analysis (BS, ratios, CF analysis, management strategy) Current position (environment, industry, products, management) Future (competitiveness,
More informationCapital Budgeting Focus on cash flows, not profits. Focus on incremental cash flows. Account for time.
Capital Budgeting Virtually all managers face capitalbudgeting decisions in the course of their careers. The most common of these is the simple yes versus no choice about a capital investment. The following
More informationChapter 9 Net Present Value and Other Investment Criteria Chapter Organization
T9.1 Chapter Outline Chapter 9 Net Present Value and Other Investment Criteria Chapter Organization! 9.1 Net Present Value! 9.2 The Payback Rule! 9.3 The Average Accounting Return! 9.4 The Internal Rate
More informationCHAPTER 6 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA
CHAPTER 6 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Answers to Concepts Review and Critical Thinking Questions 1. Assuming conventional cash flows, a payback period less than the project s life means
More information2) A project should automatically be accepted when the project's base case net present value is positive.
Questions Chapter 11 1) Given a tax rate of zero, the accounting breakeven point for a project: [A] indicates when the net present value turns positive. [B] excludes depreciation in its computation. [C]
More information2
1 2 4 5 6 7 8 What Does Discounted Cash Flow DCF Mean? A valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow
More informationFinance Management Session 5 Capital Budgeting. SHL Specialist Diploma in Events, Sports & Leisure Management
Finance Management Session 5 Capital Budgeting SHL Specialist Diploma in Events, Sports & Leisure Management Content page Specific Learning objectives Capital Budgeting Investment Criteria Types of Project
More informationCASE DESCRIPTION JEL: G31
VARIETY ENTERPRISES CORPORATION: CAPITAL BUDGETING DECISION Ilhan Meric, Rider University Kathleen Dunne, Rider University Sherry F. Li, Rider University Gulser Meric, Rowan University CASE DESCRIPTION
More informationCHAPTER 12. (i) Determination of expected CFAT (Amount in lakh of rupees) Year 1 Year 2 Year 3 CFAT P j. Cash flow CFAT P j
CHAPTER 12 Solved Problems P.12.11 Skylark Airways is planning to acquire a light commercial aircraft for flying class clients at an investment of Rs 50,00,000. The expected cash flow after tax for the
More informationInvestment Appraisal
Investment Appraisal Article relevant to F1 Business Mathematics and Quantitative Methods Author: Pat McGillion, current Examiner. Questions 1 and 6 often relate to Investment Appraisal, which is underpinned
More informationCapital Budgeting OVERVIEW
WSG12 7/7/03 4:25 PM Page 191 12 Capital Budgeting OVERVIEW This chapter concentrates on the longterm, strategic considerations and focuses primarily on the firm s investment opportunities. The discussions
More informationPart 7. Capital Budgeting
Part 7. Capital Budgeting What is Capital Budgeting? Nancy Garcia and Digital Solutions Digital Solutions, a software development house, is considering a number of new projects, including a joint venture
More informationTotal 100 All learning outcomes must be evidenced; a 10% aggregate variance is allowed.
Prescription: 603 Business Finance Elective prescription Level 6 Credit 20 Version 2 Aim Prerequisites Recommended prior knowledge Students will apply financial management knowledge and skills to small
More information6 Investment Decisions
6 Investment Decisions BASIC CONCEPTS AND FORMULAE 1. Capital Budgeting Capital budgeting is the process of evaluating and selecting longterm investments that are in line with the goal of investor s wealth
More informationHomework #3 BUSI 408 Summer II 2013
Homework #3 BUSI 408 Summer II 2013 This assignment is due 12 July 2013 at the beginning of class. Answer each question with numbers rounded to two decimal places. For relevant questions, identify the
More informationSimply put, investment
C H A P T E R10 Capital Budgeting: Introduction and Techniques Chapter Objectives By the end of this chapter you should be able to: Simply put, investment decisions have a 1. Introduce TVM concepts to
More informationEXAM 2 OVERVIEW. Binay Adhikari
EXAM 2 OVERVIEW Binay Adhikari FEDERAL RESERVE & MARKET ACTIVITY (BS38) Definition 4.1 Discount Rate The discount rate is the periodic percentage return subtracted from the future cash flow for computing
More informationChapter 8 Capital Budgeting Process and Techniques
Chapter 8 Capital Budgeting Process and Techniques MULTIPLE CHOICE 1. The capital budgeting process involves a. identifying potential investments b. analyzing the set of investment opportunities, and identifying
More informationThe Net Present Value Rule in Comparison to the Payback and Internal Rate of Return Methods
The Net Present Value Rule in omparison to the Payback and Internal Rate of Return Methods Sascha Rudolf, 8 Preamble In the context of investment decisions companies have a large variety of investment
More informationMODULE 2. Capital Budgeting
MODULE 2 Capital Budgeting Capital Budgeting is a project selection exercise performed by the business enterprise. Capital budgeting uses the concept of present value to select the projects. Capital budgeting
More informationCapital investments are longterm investments
Capital Budgeting Basics File C5240 August 2013 www.extension.iastate.edu/agdm Capital investments are longterm investments in which the assets involved have useful lives of multiple years. For example,
More informationIntroduction to Discounted Cash Flow and Project Appraisal. Charles Ward
Introduction to Discounted Cash Flow and Project Appraisal Charles Ward Company investment decisions How firms makes investment decisions about real projects (not necessarily property) How to decide which
More informationTime Value of Money. Chapter 1 INTRODUCTION COMPOUND VALUE
Chapter 1 Time Value of Money INTRODUCTION When people must choose between receiving payment immediately or periodically over a number of periods, they show a preference for present satisfaction over future
More informationSTRAYER FIN 534 Week 7 Quiz 6 Click Here to Buy the Tutorial http://www.tutorialrank.com/fin/strayerfin534/product 6961strayerfin534week7quiz6 For more course tutorials visit www.tutorialrank.com
More informationThe table for the present value of annuities (Appendix A, Table 4) shows: 10 periods at 14% = 5.216. = 3.93 years
2118 Capital budgeting methods, no income taxes. The table for the present value of annuities (Appendix A, Table 4) shows: 10 periods at 14% 5.216 1a. Net present value $28,000 (5.216) $146,048 $36,048
More information1. If the opportunity cost of capital is 10 percent, which projects have a positive NPV?
MØA 155 PROBLEM SET: Capital Budgeting Exercise 1. Projects [3] Consider the following projects: Cash flows, thousands of dollars C 0 C 1 C 2 C 3 C 4 C 5 A 1 1 0 0 0 0 B 2 1 1 4 1 1 C 3 1 1 0 1 1 1. If
More informationReview for Exam 2. Instructions: Please read carefully
Review for Exam 2 Instructions: Please read carefully The exam will have 20 multiple choice questions and 4 work problems. Questions in the multiple choice section will be either concept or calculation
More informationMidterm exam financiering/finance. <Front page>
Midterm exam financiering/finance Question 1 An agency problem can be alleviated by: A) requiring all organizations to be sole proprietorships. B) compensating managers in such a way that
More informationMETHOD FOR PROJECT APPRAISAL: NET PRESENT VALUE OR NPV The sum of discounted cash flows.
OBJECTIVE: ECONOMIC ANALYSIS OF A PROJECT, consisting of the operation of a new incineration plant by the municipality. In particular we are interested in the computaton of a Solid Waste Tariff, consistent
More informationFIN 534 Quiz 8 (30 questions with answers) 99,99 % Scored
FIN 534 Quiz 8 (30 questions with answers) 99,99 % Scored Find needed answers here  http://uoptutor.com/product/fin534quiz830questionswithanswers9999scored/ FIN 534 Quiz 8 (30 questions with answers)
More informationSession #5 Capital Budgeting  II Damodaran  Chapter 9: 6,12,16,18 Chapter 10: 2,10,16(a&b) Chapter 11: 6,12,14
Session #5 Capital Budgeting  II Damodaran  Chapter 9: 6,12,16,18 Chapter 10: 2,10,16(a&b) Chapter 11: 6,12,14 I. Additional Issues in Capital Budgeting. A. Capital rationing: Use profitability index
More informationFirst Encounter with Capital Budgeting Rules EC Borja Larrain
First Encounter with Capital Budgeting Rules EC 1745 Borja Larrain Today: 1. NPV as the golden rule. 2. The IRR. 3. Other Investment Rules. Readings: Chapter 4 Welch Assignment 1 due next class (09/29).
More informationChapters 11&12  Capital Budgeting
Chapters 11&12  Capital Budgeting Capital budgeting Project classifications Capital budgeting techniques Cash flow estimation Risk analysis in capital budgeting Optimal capital budget Capital budgeting
More informationChapter 10 The Basics of Capital Budgeting: Evaluating Cash Flows ANSWERS TO ENDOFCHAPTER QUESTIONS
Chapter 10 The Basics of Capital Budgeting: Evaluating Cash Flows ANSWERS TO ENDOFCHAPTER QUESTIONS 101 a. Capital budgeting is the whole process of analyzing projects and deciding whether they should
More informationChapter 6 Investment Decision Rules
Chapter 6 Investment Decision Rules 61. Your brother wants to borrow $10,000 from you. He has offered to pay you back $12,000 in a year. If the cost of capital of this investment opportunity is 10%, what
More information