041910_for_posting_v2003

041910_for_posting_v2003 - CH 13 A Managers Capital...

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Unformatted text preview: CH 13 A Managers Capital Budgeting Decisions Cost reduction decisions . Should new equipment be purchased to reduce costs? Now or later? With leased or purchased equipment? Which of several machines? Expansion decisions . Should a new plant be purchased to increase capacity and sales? Kattelus - Spring 2010 OVERVIEW: Capital Budgeting Techniques NOTES: Net present value PV of cash inflows less: PV of cash outflows Profitability index NPV Investment Internal rate of return Investment Net annual cash flows to get the factor used in an annuity table, to then get rate Discount rate that results in a NPV of 0 Payback period Investment Net annual cash flow Number of years needed to recover the investment Accounting rate of return Annual net operating income Initial (or average) investment* *reduced by salvage value of the old equipment, if any Kattelus - Spring 2010 Time Value of Money A dollar today is worth more than one received a year later Choose projects that promise earlier not later returns The NPV and IRR techniques use discounted cash flows; Payback period and accounting rate of return do not Tables in Appendix 13A and 13B: the present value (p.v.) of a single sum, Kattelus - Spring 2010 Net Present Value Net present value (NPV) compares the present value of a projects cash inflows with the present value of its cash outflows ....
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This note was uploaded on 10/17/2011 for the course ECON 101 taught by Professor Thompson during the Spring '11 term at Michigan State University.

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041910_for_posting_v2003 - CH 13 A Managers Capital...

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