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
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.
- Fall '13