1.13 Stud%20Week%206%20lecture%202%20Capital%20Project%20Decision%20Rules2

1.13 Stud%20Week%206%20lecture%202%20Capital%20Project%20Decision%20Rules2

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    Capital Project Decisions Week 6 Lecture 2
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    Basic Valuation - again From the time value of money we realize that the  value of anything is based on the present value  of the cash flows the asset is expected to  produce in the future
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    Valuation of Real (Tangible) Assets Valuation is still based on expected cash flows  of the asset Capital Budgeting
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    Valuation of Real (Tangible) Assets       Year            Expected Cash Flow, CF        1 $120,000        2   100,000        3   150,000        4             80,000        5     50,000 To earn a 14% return on investments like this, what is the value of this machine?
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    Cash Flow Time Lines
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    Capital Budgeting The process of planning investments in assets  whose cash flows are expected to extend  beyond one year
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    Capital Budgeting Evaluation  Techniques 1. Payback 2. Net present value (NPV) 3. Discounted Payback 4. Internal rate of return (IRR) 5. Modified Internal rate of return (MIRR)
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    Payback Method Payback Period  - Time until _________ recover the  _____________ of the project. The  payback rule  specifies that a project be accepted if  its _______________________ ___________________.    The following example will demonstrate the __________  of this method.
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    Example The three projects below are available.  The company accepts  all projects with a 2 year or less payback period.  
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1.13 Stud%20Week%206%20lecture%202%20Capital%20Project%20Decision%20Rules2

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