n capital budgeting steps 2 evaluate the risk of the

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Project Evaluate We’ll get to this in the next chapter. For now, we’ll assume that the risk of the For project is the same as the risk of the overall firm. firm. If we do this, we can use the firm’s cost of If capital as the discount rate for capital capital investment projects. investment Capital Budgeting Steps 3) Accept or Reject the Project Accept Step 1: Evaluate Cash Flows Step a) Initial Outlay: What is the cash flow at “time 0?” a) Initial (Purchase price of the asset) (Purchase + (shipping and installation costs) Current asset> (Depreciable asset) (Depreciable current liabilities + (Investment in working capital) + After-tax proceeds from sale of old asset After-tax Net Initial Outlay Net Step 1: Evaluate Cash Flows a) Initial Outlay: What is the cash flow at “time 0?” (127,000) + (shipping and installation costs) (Depreciable asset) + (Investment in working capital) + After-tax proceeds from sale of old asset Net Initial Outlay Step 1: Evaluate Cash Flows Step a) Initial Outlay: What is the cash flow at “time 0?” (127,000) + ( 20,000) (Depreciable asset) + (Investment in working capital) + After-tax proceeds from sale of old asset Net Initial Outlay Step 1: Evaluate Cash Flows a) Initial Outlay: What is the cash flow at “time 0?” (127,000) + ( 20,000) (147,000) + (Investment in working capital) + After-tax proceeds from sale of old asset Net Initial Outlay Step 1: Evaluate Cash Flows Step a) Initial Outlay: What is the cash flow at “time 0?” (127,000) + (20,000) (147,000) + (4,000) + After-tax proceeds from sale of old asset Net Initial Outlay Step 1: Evaluate Cash Flows a) Initial Outlay: What is the cash flow at “time 0?” (127,000) + (20,000) (147,000) + (4,000) + 0 Net Initial Outlay Step 1: Evaluate Cash Flows a) Initial Outlay: What is the cash flow at “time 0?” (127,000) +...
View Full Document

This document was uploaded on 02/11/2014.

Ask a homework question - tutors are online