Day 18-Ch 11 & 12-11.2.11

Day 18-Ch 11 & 12-11.2.11 - Business Management 201...

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Unformatted text preview: Business Management 201 Day 18 Chapter 11: Capital Budgeting Decision Criteria Chapter 12: Capital Budgeting November 2, 2011 Day 18 Agenda 1) POW Quiz #8: Due Friday, November 4 at 11:59 PM 2) Ch 10 Reading Quiz Due Monday, Nov 7 @ 8:00 AM 3) Book AssignmentsContact Group Members via Email Soon. Discussion Nov 21 During Class Unless Otherwise Arranged with Group. 4) Remaining TA Review Sessions this Week: TA Open Lab SessionThursday 11:00 AM-12:00 PM in 3108 JKB TA POW Review SessionThursday 5:00 PM-6:00 PM in 3714 HBLL TA Open Lab SessionFriday 11:00 AM-1:00 PM in 184 TNRB 1) Chapter 11: Capital Budgeting Decision Criteria 2) Grayson Products Mock Problem Similar to POW #8 3) Chapter 12: Capital Budgeting Ch 11: NPV & IRR Ch 11: NPV & IRR Capital Budgeting Capital Budgeting Decision Criteria Decision Criteria Capital Budgeting Significance The firms CURRENT balance sheet is the result of PAST capital budgeting decisions. Perhaps the most important decision managers make is determination of which capital projects to ACCEPT . Managers must determine if the potential project will ENHANCE or DESTROY company value. We are analyzing the four methods used for making these important capital budgeting decisions . 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. Capital Budgeting Decision- Making Methods 1) Payback Period 2) Net Present Value (NPV) 3) Profitability Index (PI) 4) Internal Rate of Return (IRR) Capital Budgeting Decisions Capital Budgeting Decisions Method #1: Method #1: Payback Period Payback Period Payback Period Payback Period: The number of years needed to recover the initial cash outlay . How long will it take for the project to generate enough cash to pay for itself [not considering the time value of money]? Lambert Inc is considering a project that requires an initial outlay of $888 and has a projected cash flow of $178 per year for 20 years. How long will it take for the project to generate enough cash to pay for itself? 1 1 2 2 3 3 4 4 5 5 20 20 6 6 7 7 Payback Period: 888/178 = 4.99 years Payback Period Example #1 (888) (888) 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 Payback Period Four Major Drawbacks...
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This note was uploaded on 01/06/2012 for the course BUS M 201-1 taught by Professor Jennlarson during the Fall '11 term at BYU.

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Day 18-Ch 11 & 12-11.2.11 - Business Management 201...

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