Day 19-Ch 12 Part 2-11.7.11

Day 19-Ch 12 Part 2-11.7.11 - BusinessManagement201 Day19

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Business Management 201 Day 19 Chapter 12: Capital Budgeting November 7, 2011
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Day 19 Agenda 1) Grayson Products Sequel Mock POW #9—In Class on  Wednesday 2) POW Quiz #9: Due Friday, November  11 at 11:59 PM 3) Ch 8 Reading Quiz Due Wednesday, Nov 9 @ 8:00 AM 4) Book Assignments Updated on Blackboard—Contact  Group Members via Email Soon.  Discussion Nov 21  During Class Unless Otherwise Arranged with Group. 5) Regular TA Review Session Schedule this Week TA Open Lab Session—Tuesday 2:00 PM-3:00 PM in 251 TNRB TA POW Review Session—Tuesday 7:00 PM-8:00 PM in 3108 JKB 1) Chapter 12—Part 2: Capital Budgeting
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Chapter 12: Chapter 12: Budgeting Topics  Budgeting Topics 
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Relevant Cash Flows (CFs) 1) Incidental CFs—Consider  Directly and indirectly related; “cannibalization” Incremental CFs:  additional   cash in minus  additional  cash out. Capital budgeting focuses  on the INCREMENTAL cash flows! 2) Sunk Costs—Ignore Do NOT consider; irrelevant to decision, irretrievable 3) Opportunity Costs—Consider  MUST consider; relevant to decision; finite capacity
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Old Test Question five  years ago  at a  cost of $640,000 . The lot was recently  appraised at $810,000 . At the time of the purchase, the  company spent  $50,000 to grade the lot  and another  $4,000 to build a small building  on the lot to house a  parking lot attendant who has overseen the use of the lot  for daily commuter parking. The company now wants to  build a new retail store on the site. The  building cost is  estimated at $1.2 million . What amount should be used  as the initial cash flow for this building project? a. $1,200,000 b. $1,840,000 c. $1,890,000 d. $2,010,000
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Beginning Initial Outlay : Equipment Cost Shipping/Installation Maintenance Sales Tax Gain/Loss on Sale of  Old Equipment NWC Annual Operating Cash Flow Formula: OCF = (Sales – Costs)*(1-Tax Rate) + (Depreciation*Tax Rate) +/- Change in NWC Middle Annual Cash Flows  [Use Formula] Gain/Loss on Sale of  Old Equipment Potential Missed Old  Depreciation Change in NWC Ending Annual Cash Flow  ALL Terminal Cash  Flows : Gain/Loss on Sale of  Old Equipment Gain/Loss on Sale of  New Equipment Return of NWC Fixed Costs Variable Costs Annual Depreciation Tax Shield = Dep*Tax Rate Only Applies if NWC  changes with sales. Capitalize ONLY expenses 
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Day 19-Ch 12 Part 2-11.7.11 - BusinessManagement201 Day19

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