BF final review - Ch. 12 When we're talking capital...

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Ch. 12 When we’re talking capital budgeting, what we’re talking about is long term investments. In Ch. 8-11, we learned that there is a cost to the Asset side of the balance sheet. The objective is to make sure, since we have these screening decisions that the projects that we invest in provide us with at least our cost of money. Otherwise something can be profitable but if the project does not return at least our cost of money then over time the total value of the company declines. Calling it an asset gives it a life longer than one year. Once you get started its hard to stop. The other issue is that I want to spend money today in hopes of getting cash flows in the future. Lot easier to determine what cost is today than determine what my cost flows will be in the future. Can estimate cost easier than future cash flows. I. Cash Flow vs. Accounting Income a. With capital budgeting, what were interested in is the cash flow. Either going to increase revenue or decrease expense.
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This note was uploaded on 04/29/2008 for the course FINA 10100 taught by Professor Markert during the Spring '08 term at Ithaca College.

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BF final review - Ch. 12 When we're talking capital...

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