lecture9 - Capital Budgeting Objectives Study the purpose...

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Capital Budgeting
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07/07/09 Richard MacMinn 2 Objectives Study the purpose and importance of capital  budgeting Study different capital budgeting criteria for  evaluating investment proposals Study methods of project selection under  capital rationing
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07/07/09 Richard MacMinn 3 Methods of Evaluating Projects Payback Net Present Value Profitability Index Internal Rate of Return 0 0.1 0.2 0.3 0.4 0.5 pb npv irr Primary Secondary
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07/07/09 Richard MacMinn 4 Methods of Evaluating Projects 1959 1964 1970 1972 1975 1977 1979 1986 npv payback 0 10 20 30 40 50 60 npv irr payback
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07/07/09 Richard MacMinn 5 1992 Survey of Capital  Budgeting Practices 0 0.2 0.4 0.6 0.8 1 irr npv pb pi prim ary sec ondary t ot al use
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07/07/09 Richard MacMinn 6 Payback Method The  payback  period of an investment is the  number of years required to recover the  initial investment The payback method is calculated by  adding the cash flows until they are equal to  the initial fixed investment 
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07/07/09 Richard MacMinn 7 Payback: Advantages and  Disadvantages Payback is easy to calculate and understand It ignores any cash flows that occur after the  payback period This approach emphasizes earliest returns This approach may discriminate against long term  projects Payback method does not consider the time value  of money
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07/07/09 Richard MacMinn 8 Net Present Value The  net present value  of an investment proposal is equal to  the present value of its annual net cash flows after taxes 
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This note was uploaded on 07/06/2009 for the course BUS BAM314 taught by Professor Na during the Spring '09 term at 東京大学.

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lecture9 - Capital Budgeting Objectives Study the purpose...

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