chap007 - Chapter 7 MAKING CAPITAL INVESTMENT DECISIONS...

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Chapter 7 MAKING CAPITAL INVESTMENT DECISIONS SLIDES CHAPTER ORGANIZATION 7.1 Incremental Cash Flows Cash Flows—Not Accounting Income Sunk Costs Opportunity Costs Side Effects 7.1 Key Concepts and Skills 7.2 Chapter Outline 7.3 Incremental Cash Flows 7.4 Cash Flows—Not Accounting Income 7.5 Incremental Cash Flows 7.6 Incremental Cash Flows 7.7 Estimating Cash Flows 7.8 Interest Expense 7.9 The Baldwin Company 7.10 The Baldwin Company 7.11 The Baldwin Company 7.12 The Baldwin Company 7.13 The Baldwin Company 7.14 The Baldwin Company 7.15 The Baldwin Company 7.16 The Baldwin Company 7.17 Incremental After Tax Cash Flows 7.18 NPV of Baldwin Company 7.19 Inflation and Capital Budgeting 7.20 Inflation and Capital Budgeting 7.21 Other Methods for Computing OCF 7.22 Investments of Unequal Lives 7.23 Investments of Unequal Lives 7.24 Investments of Unequal Lives 7.25 Investments of Unequal Lives 7.26 Replacement Chain Approach 7.27 Replacement Chain Approach 7.28 Equivalent Annual Cost (EAC) 7.29 Cadillac EAC with a Calculator 7.30 Cheapskate EAC with a Calculator 7.31 Quick Quiz
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A-100 CHAPTER 7 Allocated Costs 7.2 The Baldwin Company: An Example An Analysis of the Project Which Set of Books? A Note about Net Working Capital A Note about Depreciation Interest Expense 7.3 Inflation and Capital Budgeting Interest Rates and Inflation Cash Flow and Inflation Discounting: Nominal or Real? 7.4 Alternative Definitions of Operating Cash Flow The Bottom-Up Approach The Top-Down Approach The Tax Shield Approach Conclusion 7.5 Investments of Unequal Lives: The Equivalent Annual Cost Method The General Decision to Replace ANNOTATED CHAPTER OUTLINE Slide 7.0 Chapter 7 Title Slide Slide 7.1 Key Concepts and Skills Slide 7.2 Chapter Outline 7.1. Incremental Cash Flows Slide 7.3 Incremental Cash Flows .A Cash Flows—Not Accounting Income Slide 7.4 Cash Flows—Not Accounting Income Relevant cash flows – cash flows that occur (or do not occur) because a project is undertaken. Cash flows that will occur whether or not we accept a project are not relevant. Incremental cash flows – any and all changes in the firm’s future cash flows that are a direct consequence of taking the project
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CHAPTER 7 A-101 Accounting income is only relevant in that it is used as a starting point for generating cash flows. Use after-tax cash flows, not pretax (the tax bill is a cash outlay, even though it is based on accounting numbers). Lecture Tip: It should be strongly emphasized that a project’s cash flows imply changes in future firm cash flows and, therefore, in the firm’s future financial statements. Below are a few examples of possible projects that would cause the student to consider the nature of an incremental item.
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This note was uploaded on 12/21/2011 for the course NIKA 101 taught by Professor Temur during the Spring '11 term at Acton School of Business.

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chap007 - Chapter 7 MAKING CAPITAL INVESTMENT DECISIONS...

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