311 ch9 - Capital Budgeting and Cash Flow Analysis Chapter...

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Capital Budgeting and Cash Flow Analysis Chapter 9
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Capital Budgeting The process of planning for purchases of assets whose returns are expected to continue beyond a year Capital Expenditure A cash outlay expected to generate a flow of future cash benefits for more than a year Decisions can be the most complex facing management
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Capital Expenditure Decisions Expand an existing product line Working capital Refunding Leasing Merger and acquisition Enter a new line of business Replacement Advertising campaign Education and training
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Cost of Capital Firm’s overall cost of funds Investor’s required rate of return Provides a basis for evaluating capital investment projects Does the project earn a high enough return?
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How Projects Are Classified Independent Acceptance or rejection has no effect on other projects Mutually Exclusive Acceptance of one automatically rejects the others Contingent Acceptance is dependent upon the selection of another
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Capital Rationing Most companies have a limited amount of dollars available for investment Funds constraint
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311 ch9 - Capital Budgeting and Cash Flow Analysis Chapter...

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