review_final - BUS 281 Final Review Final Chapters we...

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BUS 281 Final Review
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Final Chapters we covered before the midterm form the basis for this course. Therefore you may consider the final as a cumulative exam, however the emphasis will be on the chapters covered after the midterm. 150 min., closed book exam Only simple/scientific calculators are allowed (cell phones, PDAs etc are not allowed)
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Study Strategy Read lecture notes and textbook chapters Check Summary and Conclusions Concepts Review Make sure you know and understand the formulas and what each part of them mean Doing the practice questions at the end of the chapter and solving the examples in the lecture notes is a good practice
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Chapter 10- Making Capital Investment Decisions Relevant Cash Flows The cash flows that should be included in a capital budgeting analysis are those that will only occur if the project is accepted - incremental cash flows Net Working Capital Inventory, accounts receivable. . Firm’s investment in NWC is like a loan Firm supplies working capital at the beginning and recovers it towards the end Financing costs In analyzing a proposed investment, we will not include interest paid (cash flow to creditors, not cash flow from assets) or any other financing costs such as dividends, we are interested in the cash flows generated by the project We are always interested in measuring cash flow when it occurs We are always interested in aftertax cash flows
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Depreciation itself is a non-cash expense, it is only relevant because it affects taxes Straight-line depreciation D = (Initial cost – Book Value) / number of years MACRS (Modified accelareted cost recovery System): Multiply percentage given in table by the initial cost After-tax Salvage If the salvage value is different from the book value of the asset, then there is a tax effect Book value = initial cost – accumulated depreciation After-tax salvage =salvage – T*(salvage – book value)
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Cash Flow From Assets ( CFFA): the total net cash flow per period Changes in Net Working Capital ( NWC) Net Capital Spending ( NCS ) Operating Cash Flow ( OCF ): regularly generated cash flows from the ongoing activities Bottom-Up Approach (Works only when there is no interest expense) OCF = NI + depreciation Top-Down Approach OCF = Sales – Costs – Taxes Tax Shield Approach OCF = (Sales – Costs)(1 – T) + Depreciation*T At Each Point in Time: CFFA = OCF – NWC– NCS
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Main Question Types Cost Cutting Setting the bid price Evaluating equipment options with different lives -The machine chosen will be replaced indefinitely - EAC
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This note was uploaded on 04/13/2010 for the course BUSINESS engl 102 taught by Professor Seyhanözmenek during the Spring '10 term at Middle East Technical University.

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review_final - BUS 281 Final Review Final Chapters we...

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