350-10a_note, 11S Page 1 of 15 TOPIC 10: BASICS OF CAPITAL BUDGETING (CHAPTER 11) I.Outline A.What is Capital Budgeting B.Steps to Capital Budgeting 1.Estimate CFs (inflows & outflows). 2.Assess riskiness of CFs. 3.Determine the appropriate cost of capital. 4.Evaluate the project: 5.Make decision to either accept or reject the project C.Evaluation Method 1.Payback period method 2.Discounted payback period method 3.Net present value (NPV) 4.Internal Rate of Return (IRR) 5.Modified Internal Rate of Return (MIRR) D.Adjust for Risk II.Homework Assignment Chapter11Question2, 3, 5, 6, 9Problem1-5, 7, 11-13III.Decision Table Project L Project S Benchmark Decision: Independent projects Decision: Mutually Exclusive projects Payback Discounted Payback NPV IRR MIRR Should we build this plant?
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