Chapter 11 - Capital Budgeting Process of planning...

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Capital Budgeting Process of planning, evaluating and selecting the Fixed Asset investments the firm will undertake, consistent with shareholder wealth maximization
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PLANNING A comprehensive “capital plan” is generated as part of the overall budgeting process. It includes strategic investments from executives as well as operational investments from the divisional level Projects are usually sorted by types: Expansion Replacement Requirements
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Evalulating Forecast project’s cash flows (costs and benefits) expected over the asset’s useful or economic life (chapter 12) AND Compare the costs and benefits on a TVM basis (chapter 11) NPV - net present value IRR - internal rate of return MIRR - modified internal rate of return Payback Period (not TVM based)
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Selecting Involves picking the best projects, especially when funding is limited (capital rationing).
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Net Present Value (NPV) Present value of the future cash flows, net of the initial investment.
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