Capital Budgeting

Capital Budgeting - * * CapitalBudgeting

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* Capital Budgeting Capital Budgeting :   the process of planning  for purchases of long-term assets. Example :   Suppose our firm must decide  whether to purchase a new plastic molding  machine for  $127,000 .   How do we decide? What information do  we need to know to make a decision? * Includes  all cash flows  that occur during  the  life  of the project. 2) Considers the  time value of money 3) Incorporates the  required rate of return  (i.e.  risk) of the project. [ Remember INVERSE   relationship!] There are  Four Methods  discussed in Chapter 11.  An analyst needs to  carefully weigh the strengths and weaknesses of each method before  making a long-term capital budgeting decision. * Payback Period * Net Present Value (NPV) * Profitability Index (PI) * Internal Rate of Return (IRR) Payback Period:  The  number of years  needed  to  recover the initial cash outlay .
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This note was uploaded on 11/23/2011 for the course BUS M 301 taught by Professor Jimbrau during the Summer '11 term at BYU.

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Capital Budgeting - * * CapitalBudgeting

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