Week 4 Lecture Notesr60211

Week 4 Lecture Notesr60211 - Week 4 Lecture Notes 1....

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Week 4 Lecture Notes 1. Welcome to the Week 4 Lecture. We will cover Chapters 9 and 10 in your textbook. Our primary topic regards the time value of money along with rates and returns. 2. This lecture will review time value in regards to money. We will review various aspects of time value including future value based on a number of periods over which funds are to be compounded at a given interest rate. The present value of money based on the current value of funds to be received along with the tables necessary to compute these formulas. Our lecture will discuss the compounding and discounting that occurs on investments on an annual, semiannual or quarterly period. In addition, the valuation of assets based on the present value of future cash flows and the required rate of return in valuing an asset based on the risk involved. 3. Whenever a firm makes an expenditure that generates a cash flow benefit for more than one year, it is a capital expenditure. Capital expenditures involve large cash outlays with major implications on the future values of the company. 4. This slide shows several examples of capital outlays including store outlets, manufacturing equipment, digital imaging systems, ships, planes and equipment. 5. Capital Budgeting Analysis is a process of evaluating how we invest in capital assets; assets that provide cash flow benefits for more than one year. Will the future benefits of this project be large enough to justify the investment given the risk involved? It has been said that how we spend our money today determines what our value will be tomorrow. Therefore, we will focus much of our attention on present values so that we can understand how expenditures today influence values in the future. Capital investment decisions that involve the purchase of items such as land, machinery, buildings, or equipment are among the most important decisions undertaken by the business manager. These decisions typically involve the commitment of large sums of money, and they will affect the business over a number of years. Furthermore, the funds to purchase a capital item must be paid out immediately, whereas the income or benefits accrue over time. Because the benefits are based on future events and the ability to foresee the future is imperfect, one should make a considerable effort to evaluate investment alternatives as thoroughly as possible. The most important task of investment analysis is gathering the appropriate data. 6. The basic concept of a net present value procedure is that a dollar in hand today is worth more than a dollar to be received sometime in the future. A dollar is worth more today than tomorrow because today’s dollar can be invested and can generate earnings. In addition, the uncertainty of receiving a dollar in the future and inflation make a future dollar less valuable than if it were received today. The procedure for accounting for the delay in receiving funds or the income given up is to discount, or penalize, future cash
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/10/2011 for the course ACCOUNTING IS 160 taught by Professor Taylor during the Spring '11 term at Herzing.

Page1 / 9

Week 4 Lecture Notesr60211 - Week 4 Lecture Notes 1....

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online