Chapters 11&12 -- Capital Budgeting

60 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 Strategic business plan: a long-run plan that outlines in broad terms the firm s basic strategy for the next 5 to 10 years Capital Budgeting : the process of planning expenditures on assets with cash flows that are expected to extend beyond one year Project classifications Replacements: Need to continue current operations Need to reduce costs Expansions: Need to expand existing products or markets Need to expend into new products or markets Others: safety/environmental projects, mergers Capital Budgeting techniques (Chapter 11) (1) Net present value (NPV): present value of future net cash flows, discou

value of initial cost is equal to the present value of the terminal value (4) Payback period: the length of time (years) required for an investment’s cash flows to cover its cost (5) Discounted payback period: the length of time (years) required for an investment’s cash flows, discounted at the investment’s cost of capital to recover

Tags:

  Cost, Periods, Payback, Payback period

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