L_12_ - Lecture 12 Capital Budgeting Lecture Organization...

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Lecture 12 Capital Budgeting Lecture Organization Incremental Cash Flows Pro Forma Financial Statements and Project Cash Flows and Net Working Capital
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Fundamental Principles of Project Evaluation: Project evaluation Relevant cash flows -
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Incremental Cash Flows How identify Incremental Cash Flows? Key issues: What kind of costs should be accounted for ? A. Sunk costs B. Opportunity costs C. Side effects D. Net working capital E. Financing costs F. Other issues
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Incremental Cash Flows A. Sunk cost —a cash flow already paid or already promised to be paid. Example:   A  year  ago  Northeast  Bank  hired  a  consulting firm for $100K to perform a site analysis of the new  site  for  a  possible  construction  of  new office.  Q: Should  this  cost  be  considered  in  the decision  to  open  or  not  a  new  office  in  this area. 
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Incremental Cash Flows B. Opportunity costs —any cash flows lost or foregone by taking one course of action rather than another. Applies to any asset or resource that has value if sold
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This note was uploaded on 06/22/2011 for the course FINA 365 taught by Professor Koch during the Spring '08 term at South Carolina.

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L_12_ - Lecture 12 Capital Budgeting Lecture Organization...

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