548-Week 4 MBA.PM Spring 2010

548-Week 4 MBA.PM Spring 2010 - Valuation of Capital...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 Valuation of Capital Investments and Estimating Corporate Cash Flows Week 5: March 22 (LA) March 23 (OCC)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 Accounting versus Finance Accounting reports historical performance in an effort to provide measures of performance Accrual accounting matches sales and costs to allow assessment of profitability over time Depreciation and amortization accounts for declining value of investments Finance is only concerned with cash flows
Background image of page 2
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 Cash Flows differ from Accruals Revenues may not be received in cash, hence you must account for growth in accounts receivables Costs may not match purchase of materials on credit with delayed payment (trade payables) and storage for later production (inventories) Financial analysts adjust accounting statements, either actual or future pro formas to account for accounting distortions of actual cash receipts and payments
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 Capital Investments Like common stock cash flows, payments from investments in capital are not determined Investments are the foremost decision of the management of the firm The firm’s investment decisions should maximize shareholders’ wealth
Background image of page 4
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 Non-DCF Investment Rules Discussion based on Chapter 5 Corporate practice is not always good practice and some common rules are wrong Payback period = time to recover investment, e.g $100 tool saving $50/year has two-year payback period Average (accounting) return = Average Income/Average investment, e.g $50/year income and $100 tool with two year life implies $50/(($100+0)/2 = 100% return
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 18

548-Week 4 MBA.PM Spring 2010 - Valuation of Capital...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online