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Fin 221 web L 02 - Managerial Finance Lecture 2 Free Cash...

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1 Managerial Finance Lecture 2 Free Cash Flows Class 1: Takeaways Finance is about decision making Good decisions: Include all relevant costs and benefits Consider the opportunity cost of taking the decision: best alternative use Net present value rule captures the essence of good decisions: Considers all costs and benefits throughout the life of the project Makes costs and benefits comparable by computing their present value Considers the opportunity cost of funds through the rate that we use to discount the cash flows of the project 2 discount the cash-flows of the project NPV captures how much value is created Intuitive and easy to compute if we know 1. The cash-flows (main focus today) 2. The discount rate
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