Chapter 09 Financial Management

Chapter 09 Financial Management - Financial Management ADM...

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1 Financial Management ADM 2350 Professor: Dr. William F. Rentz
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2 Cash Flow Analysis Chapter 9 This session discusses capital budgeting and capital expenditures It focuses on estimating the cash flows of capital budgeting projects
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3 Capital Budgeting The process of planning for purchases of assets whose returns are expected to continue beyond a year Capital Expenditure A cash outlay expected to generate a flow of future cash benefits for more than a year
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4 Capital Budgeting Capital budgeting decisions can be the most complex decisions facing management
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5 Capital Expenditure Decisions Expand an existing product line Working capital Refunding Leasing Merger and acquisition Enter a new line of business Replacement Advertising campaign Education and training
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6 Cost of Capital Firm’s overall cost of funds Investors’ required rate of return Provides a basis for evaluating capital investment projects of average risk
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7 How Projects Are Classified Independent Acceptance or rejection has no effect on other projects Mutually Exclusive Acceptance of one automatically rejects the others Contingent Acceptance of one project is dependent upon the selection of another
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8 Mutually Exclusive Projects Purchase new machine Purchase used machine Rent machine Repair old machine
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Chapter 09 Financial Management - Financial Management ADM...

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