Chapter_11-Capital_Budgeting

Chapter_11-Capital_Budgeting - 11-1Click to edit Master...

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Unformatted text preview: 11-1Click to edit Master subtitle style11-1CHAPTER 11Capital BudgetingShould we build thisplant?11-2What is capital budgeting?nProcess of identifying & selecting investments in long-lived assets, (assets that can generate benefits over more than a year).nAnalysis of potential additions to fixed assets.nLong-term decisions; involve large 11-3Why do we need capital budgeting?1) Outlay of capital (initial investment) - immediately.2) Benefits/return on investment - only after completed / over a no. of years.11-4Steps to capital budgeting1.Estimate CFs (inflows & outflows).2.Assess riskiness of CFs.3.Determine the appropriate cost of capital.4.Find NPV and/or IRR.5.Accept if NPV > 0 and/or IRR > WACC.11-5What is the difference between independent and mutually nIndependent projects – if the cash flows of one are unaffected by the acceptance of the other.nMutually exclusive projects – if the cash flows of one can be adversely impacted by the acceptance 11-6Capital budgeting techniques1) Net Present Value (NPV)2) Internal Rate of Return (IRR)3) Modified Internal Rate of Return (MIRR)4) Payback Period5) Discount Payback Period11-7...
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This note was uploaded on 08/30/2010 for the course FM 13678 taught by Professor Kellison during the Spring '10 term at St. Clair College.

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Chapter_11-Capital_Budgeting - 11-1Click to edit Master...

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