Capital budgeting

Corporate financial managers continually invest funds in assets, and these assets produce income and cash flows that the firm can then either reinvest in more assets or distribute to the owners of the firm. Capital investment refers to the firm’s investment in assets, and these investments may be either short term or long term in nature. Capital budgeting decisions involve the longterm commitment of a firm’s scarce resources in capital investments. When such a decision is made, the firm is committed to a current and possibly future outlay of funds....
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Chapter 1 introduces the concept of capital budgeting, and sets out the structure of the book. The important points are: Capital budgeting is the most significant financial activity of the firm. Capital budgeting determines the core activities of the firm over a long term future. Capital budgeting decisions must be made carefully and rationally.
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Bài giảng Chapter 10: The Basics of Capital Budgeting: Evaluating Cash Flows provides about Overview and “vocabulary”, Methods (Payback, discounted payback; NPV; IRR, MIRR; Profitability Index), Unequal lives, Economic life.
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In this chapter: Compare the capital budgeting analysis of an MNC’s subsidiary versus its parent, demonstrate how multinational capital building can be applied to determine whether an international project should be implemented, show how multinational capital budgeting can be adapted to account for special situations such as alternative exchange rate scenarios or when subsidiary financing is considered, explain how the risk of international projects can be assessed.
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The term capital budgeting is used to describe how managers plan significant cash outlays on projects that have longterm implications, such as the purchase of new equipment and the introduction of new products. This chapter describes several tools that can be used by managers to help make these types of investment decisions.
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After studying chapter 12, you should be able to: Define “capital budgeting” and identify the steps involved in the capital budgeting process, explain the procedure used to generate longterm project proposals within the firm, justify why cash, not income, flows are the most relevant to capital budgeting decisions,...
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Once we have determined the relevant cashflow information necessary to make capital budgeting decisions, we need to evaluate the attractiveness of the various investment proposals under consideration. The investment decision will be to either accept or reject each proposal. In this chapter we study alternative methods of project evaluation and selection.
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The term capital budgeting is used to describe how managers plan significant cash outlays on projects that have longterm implications, such as the purchase of new equipment and the introduction of new products. This chapter describes several tools that can be used by managers to help make these types of investment decisions.
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After studying chapter 14, you should be able to: Define the “riskiness” of a capital investment project; understand how cashflow riskiness for a particular period is measured, including the concepts of expected value, standard deviation, and coefficient of variation; describe methods for assessing total project risk, including a probability approach and a simulation approach.
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.This page intentionally left blank .Capital Budgeting This book explains the ﬁnancial appraisal of capital budgeting projects. The coverage extends from the development of basic concepts, principles and techniques to the application of them in increasingly complex and realworld situations. Identiﬁcation and estimation (including forecasting) of cash ﬂows, project appraisal formulae and the application of net present value (NPV), internal rate of return (IRR) and other project evaluation criteria are illustrated with a variety of calculation examples.
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Chapter 12  Capital budgeting and estimating cash flows. After studying chapter 12, you should be able to: Define “capital budgeting” and identify the steps involved in the capital budgeting process, explain the procedure used to generate longterm project proposals within the firm, justify why cash, not income, flows are the most relevant to capital budgeting decisions,...
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Once we have determined the relevant cashflow information necessary to make capital budgeting decisions, we need to evaluate the attractiveness of the various investment proposals under consideration. The investment decision will be to either accept or reject each proposal. In this chapter we study alternative methods of project evaluation and selection. In addition, we address some of the potential difficulties encountered in trying to implement these methods.
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Capital budgeting is the allocation of funds to longlived capital projects. A capital project is a longterm investment in tangible assets. Chapter 2 describe the capital budgeting process, including the typical steps of the process, and distinguish among the various categories of capital projects.
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Chapter 11  Capital budgeting decisions. The term capital budgeting is used to describe how managers plan significant cash outlays on projects that have longterm implications, such as the purchase of new equipment and the introduction of new products. This chapter describes several tools that can be used by managers to help make these types of investment decisions.
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Chpater 12  Capital budgeting decisions. After studying Chapter 12, you should be able to: Determine the acceptability of an investment project using the net present value method, prepare a net present value analysis of two competing investment projects using either the incrementalcost approach or the totalcost approach, rank investment projects in order of preference using the profitability index,...
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Chapter 13  Capital budgeting decisions. The term capital budgeting is used to describe how managers plan significant cash outlays on projects that have longterm implications, such as the purchase of new equipment and the introduction of new products. This chapter describes several tools that can be used by managers to help make these types of investment decisions.
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Chapter 13C  Income taxes in capital budgeting decisions. We ignored income taxes in this chapter for two reasons. First, many organizations do not pay income taxes. Notforprofit organizations, such as hospitals and charitable foundations, and governmental agencies are exempt from income taxes. Second, capital budgeting is complex and is best absorbed in small doses. Now that we have a solid foundation in the concepts of present value and discounting, we can explore the effects of income taxes on capital budgeting decisions.
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After studying Chapter 13, you should be able to: Understand the three major discounted cash flow (DCF) methods of project evaluation and selection – internal rate of return (IRR), net present value (NPV), and profitability index (PI); explain the calculation, acceptance criterion, and advantages (over the PBP method) for each of the three major DCF methods;...
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This chapter begins with a general introduction to project risk and follows with the consideration of its specific measurement. Next, an investment project is examined with respect to its firmportfolio risk – that is, the marginal risk of a project to the firm as a whole. Finally, the effect of managerial (real) options on project desirability is studied.
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Chapter 25  Capital budgeting. After studying this chapter you will be able to: Explain the nature of capital investment decisions; identify nonfinancial factors in capital investment decisions; evaluate capital investment proposals using (a) payback period, (b) return on investment, and (c) discounted cash flows; discuss the relationship between net present value and an investor's required rate of return;...
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