NPV and other criteria for Capital Budgeting

T bills cost to holding inventories if you are forced

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Unformatted text preview: returns Russell 2000 Index Lots of publicly traded companies. Russell 2000 looks at next 2000 (1000 – 3000) biggest stocks, companies to evaluate small stocks Why would small stocks be the best long- term return? They’re riskier but because of market inefficiency, lack of saturation and large upside, small caps are more rewarding Small companies make decisions a lot more efficient, less bureaucracy, adapt to change more efficiently (big companies more likely to run into rocks because they are slow- moving) Diseconomies of scale: beyond a certain point, you are subject to pressure and other negatively influencing factors Volatility as deviation, small caps have higher risk, volatility that somewhat offsets this. T- bills (risk free asset) barely beats inflation US government treasury bills (1 year maturity or less) Risk- free short term asset with minimal interest rate Factor in taxes and inflation, you lose money (cannot get real rate of return without risk) Can’t glide your way through or preserve...
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