Two basic approaches to capital budgeting decisions

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Unformatted text preview: by a series of inflows; any other pattern is nonconventional. Discuss the major components of relevant cash flows, expansion versus replacement cash flows, sunk costs and opportunity costs, and international capital budgeting and long-term investments. The relevant cash flows for capital budgeting decisions are the initial investment, the operating cash inflows, and the terminal cash flow. For replacement decisions, these flows are found by determining the difference between the cash flows of the new asset and the old asset. Expansion decisions are viewed as replacement decisions in which all cash flows from the old asset are zero. When estimating relevant cash flows, one should ignore sunk costs, and opportunity costs should be included as cash outflows. In international capital budgeting, currency risks and political risks can be minimized through careful planning. LG3 Calculate the initial investment associated with LG4 a proposed capital expenditure. The initial investment is the initial outflow required, taking into account the installed cost of the new...
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This document was uploaded on 01/19/2014.

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