Session 2, Monday, April 3 rd (11:30-12:30)
|
|
- Agnes Kelley
- 5 years ago
- Views:
Transcription
1 Session 2, Monday, April 3 rd (11:30-12:30) Capital Budgeting Continued and the Cost of Capital v Association for Financial Professionals. All rights reserved. Session 3-1
2 Chapters Covered Internal Rate of Return: Part I, Domain B Chapter 6 Payback Period and Discounted Payback Period: Part II, Domain B Chapter 11 Cost of Capital: Part I, Domain B Chapter 6 v Association for Financial Professionals. All rights reserved. Session 3-2
3 Financial Valuation Methods Discounted Cash Flow (DCF) Discounts the future value of all cash inflows and outflows of an investment back to their present value by factoring in costs of capital debt and equity costs. Required Rate of Return (RRR) The minimum annual percentage earned on invested capital for it to be deemed acceptable. Equal to the weighted average cost of capital (WACC). v Association for Financial Professionals. All rights reserved. Session 3-3
4 Internal Rate of Return (IRR) Internal rate of return (IRR) is the discount rate at which the net present value of an investment becomes zero. A project is acceptable only if the IRR exceeds the organization s target rate of return or weighted average cost of capital (WACC). v Association for Financial Professionals. All rights reserved. Session 3-4
5 More on IRR The discount rate that forces the NPV to equal $0 Since an NPV of $0 means that the PV of CFs equals the upfront cost, the IRR is considered to be the yield or rate of return earned $0 = CF IRR 1 + CF IRR CF N 1 + IRR N Upfront Costs Decision Rule: Accept if IRR > WACC Must rely on the spreadsheet to calculate IRR v Association for Financial Professionals. All rights reserved. Session 3-5
6 IRR Example An investment with an upfront cost of $55,000 will generate the following CFs at the end of the next 5 years: $16,000, $19,000, $18,000, $17,500, $17,500. What is the IRR? v Association for Financial Professionals. All rights reserved. Session 3-6
7 Problems with the IRR Possibility of multiple IRRs The number of IRRs will equal the number of sign changes in the cash flow stream Reinvestment rate assumption The process used to calculate the IRR assumes that cash flows are reinvested at the IRR The scale problem If two projects/investments are mutually exclusive, the project/investment with the higher NPV may have a lower IRR v Association for Financial Professionals. All rights reserved. Session 3-7
8 Payback Period The payback period is the number of periods required for the sum of the project s expected cash flows to equal the initial outlay Time needed to recover initial investment Decision rule: Compare the payback period to a standard value E.g., If standard value is 2 years, then a given project with a 3.5 year payback period would be rejected. Projects with longer payback periods may have more risk and are generally less desirable v Association for Financial Professionals. All rights reserved. Session 3-8
9 Payback Period Example An investment with an upfront cost of $55,000 will generate the following CFs at the end of the next 5 years: $16,000, $19,000, $18,000, $17,500, $17,500. What is the payback period? v Association for Financial Professionals. All rights reserved. Session 3-9
10 Payback Method Year Cash Inflow Cumulative Cash Inflow Unrecovered Investment at Year End 0 0 $55,000 1 $16,000 $16,000 $39,000 2 $19,000 $35,000 $20,000 3 $18,000 $53,000 $2,000 4 $17,500 $70,500 5 $17,500 $88,000 Payback Period = 3 Years $2, 000 $17, Year = Years v Association for Financial Professionals. All rights reserved. Session 3-10
11 Weaknesses and Strengths of Payback Period Weaknesses Does not account for the timing or risk of cash flows (i.e., no time value of money adjustment) Does not account for cash flows that occur after payback Inherent bias against long-term investments Strengths Simple and easy to apply, providing an efficient screening tool Provides a measure of project liquidity v Association for Financial Professionals. All rights reserved. Session 3-11
12 Discounted Payback Method Year Cash Inflow Discounted at 8% Cumulative Discounted Cash Inflow Unrecovered Investment at Year End $55,000 1 $16, $14,816 $14,816 $40,184 2 $19, $16,283 $31,099 $23,901 3 $18, $14,292 $45,391 $9,609 4 $17, $12,863 $58,254 5 $17, $11,918 $70,172 Discounted Payback Period = 3 Years $9, 609 $12, Year = Years v Association for Financial Professionals. All rights reserved. Session 3-12
13 More on Discounted Payback Period Accounts for timing and risk of cash flows via adjustment for time value of money Still, it is a limited capital budgeting measure v Association for Financial Professionals. All rights reserved. Session 3-13
14 Comparison of Analysis Methods Net present value (NPV) Identifies cash flow for each year of the project. Computes PV of cash flow for each period. Add present values of cash flows. An acceptable NPV is greater than Zero. Internal rate of return (IRR) Uses discounted cash flow. Discount rate at which the present value off all cash inflows equals the present value of all cash outflows. Acceptable only if the IRR exceeds target rate of return or WACC. v Association for Financial Professionals. All rights reserved. Session 3-14
15 Comparison of Analysis Methods Payback and Discounted Payback Determines the time required for an organization to recover its original investment through future cash flows. The longer the period required to recoup the original investment the less certain the projected cash flows are. The payback method is a good screening tool. Does not consider what happens to cash flows after the break-even point. Profitability Index Ratio of a project s returns to the project s required investment. If the ratio is greater than 1, the project is viable. v Association for Financial Professionals. All rights reserved. Session 3-15
16 WACC The capital budgeting metrics account for the opportunity cost of future cash inflows using the weighted average cost of capital (WACC) WACC = [W D *k D *(1-T)] + [W E *k E ] k D = the annual cost of debt; best proxy is the yield to maturity (YTM) on the firm s most recent bond issue k E = the cost of equity T = Marginal tax rate v Association for Financial Professionals. All rights reserved. Session 3-16
17 More on WACC How to define the capital structure weights? Book values Market values My best guess: Book values v Association for Financial Professionals. All rights reserved. Session 3-17
18 WACC Example from L.S. Capital Capital Structure Rate of Return Weighted Cost of Capital Debt 40% 7% 2.8% Equity 60% 5% 3.0% 5.8% v Association for Financial Professionals. All rights reserved. Session 3-18
19 More on WACC A firm is trying to determine the best capital structure, and the following options are available. Which capital structure will maximize the value of the firm s cash flows? a. 30% Debt; 70% Equity: Cost of Debt = 5%; Cost of Equity = 9% b. 40% Debt; 60% Equity: Cost of Debt = 6%; Cost of Equity = 10% c. 60% Debt; 40% Equity: Cost of Debt = 6.5%; Cost of Equity = 11% d. 70% Debt; 30% Equity: Cost of Debt = 8.5%; Cost of Equity = 13% v Association for Financial Professionals. All rights reserved. Session 3-19
20 More on WACC From the Balance Sheet: Assets = $2,000,000 and Equity is $700,000 YTM on bonds = 7% Cost of equity = 12% Tax rate = 35% What is the firm s WACC? v Association for Financial Professionals. All rights reserved. Session 3-20
21 Answer WACC = 7.16% v Association for Financial Professionals. All rights reserved. Session 3-21
22 More on WACC Know the calculation and interpretation Be able to think through the qualitative implications What happens if the tax rate increases? If k D < k E, then why not 100% debt? v Association for Financial Professionals. All rights reserved. Session 3-22
AFP Financial Planning & Analysis Learning System Session 1, Monday, April 3 rd (9:45-10:45) Time Value of Money and Capital Budgeting
AFP Financial Planning & Analysis Learning System Session 1, Monday, April 3 rd (9:45-10:45) Time Value of Money and Capital Budgeting Chapters Covered Time Value of Money: Part I, Domain B Chapter 6 Net
More informationSession 1, Monday, April 8 th (9:45-10:45)
Session 1, Monday, April 8 th (9:45-10:45) Time Value of Money and Capital Budgeting v2.0 2014 Association for Financial Professionals. All rights reserved. Session 3-1 Chapters Covered Time Value of Money:
More informationChapter 8 Net Present Value and Other Investment Criteria Good Decision Criteria
Chapter 8 Net Present Value and Other Investment Criteria Good Decision Criteria We need to ask ourselves the following questions when evaluating decision criteria Does the decision rule adjust for the
More informationThe Basics of Capital Budgeting
Chapter 11 The Basics of Capital Budgeting Should we build this plant? 11 1 What is capital budgeting? Analysis of potential additions to fixed assets. Long term decisions; involve large expenditures.
More informationWhat is it? Measure of from project. The Investment Rule: Accept projects with NPV and accept highest NPV first
Consider a firm with two projects, A and B, each with the following cash flows and a 10 percent cost of capital: Project A Project B Year Cash Flows Cash Flows 0 -$100 -$150 1 $70 $100 2 $70 $100 What
More informationCapital Budgeting: Decision Criteria
Consider a firm with two projects, A and B, each with the following cash flows and a 10 percent cost of capital: Project A Project B Year Cash Flows Cash Flows 0 -$100 -$150 1 $70 $100 2 $70 $100 What
More informationChapter 7. Net Present Value and Other Investment Rules
Chapter 7 Net Present Value and Other Investment Rules Be able to compute payback and discounted payback and understand their shortcomings Understand accounting rates of return and their shortcomings Be
More informationLecture Guide. Sample Pages Follow. for Timothy Gallagher s Financial Management 7e Principles and Practice
Lecture Guide for Timothy Gallagher s Financial Management 7e Principles and Practice 707 Slides Written by Tim Gallagher the textbook author Use as flash cards for terminology and concept review Also
More informationDescribe the importance of capital investments and the capital budgeting process
Chapter 20 Making capital investment decisions Affects operations for many years Requires large sums of money Describe the importance of capital investments and the capital budgeting process 3 4 5 6 Operating
More informationLO 1: Cash Flow. Cash Payback Technique. Equal Annual Cash Flows: Cost of Capital Investment / Net Annual Cash Flow = Cash Payback Period
Cash payback technique LO 1: Cash Flow Capital budgeting: The process of planning significant investments in projects that have long lives and affect more than one future period, such as the purchase of
More informationChapter 11: Capital Budgeting: Decision Criteria
11-1 Chapter 11: Capital Budgeting: Decision Criteria Overview and vocabulary Methods Payback, discounted payback NPV IRR, MIRR Profitability Index Unequal lives Economic life 11-2 What is capital budgeting?
More informationSoftware Economics. Introduction to Business Case Analysis. Session 2
Software Economics Introduction to Business Case Analysis Session 2 Today Last Session we covered FV, PV and NPV We started with setting up the financials of a Business Case We talked about measurements
More informationTopic 12 capital investment
Topic 12 capital investment Aldi press- release - There is a strong appetite among South Australians for an alternative place to shop and we are eager to show them the significant benefits that can come
More informationSoftware Economics. Metrics of Business Case Analysis Part 1
Software Economics Metrics of Business Case Analysis Part 1 Today Last Session we covered FV, PV and NPV We started with setting up the financials of a Business Case We talked about measurements to compare
More informationSample Questions for Chapters 10 & 11
Name: Class: Date: Sample Questions for Chapters 10 & 11 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. Sacramento Paper is considering
More informationAn Introduction to Capital Budgeting Methods
An Introduction to Capital Budgeting Methods Econ 466 Spring, 2010 Chapters 9 and 10 Consider the following choice You have an opportunity to invest $20,000 in one of the following capital assets. You
More informationCA - FINAL INTERNATIONAL FINANCIAL MANAGEMENT. FCA, CFA L3 Candidate
CA - FINAL INTERNATIONAL FINANCIAL MANAGEMENT FCA, CFA L3 Candidate 12.1 International Financial Management Study Session 12 LOS 1 : International Capital Budgeting Capital Budgeting is the process
More informationCapital Budgeting, Part I
Capital Budgeting, Part I Lakehead University Fall 2004 Capital Budgeting Techniques 1. Net Present Value 2. The Payback Rule 3. The Average Accounting Return 4. The Internal Rate of Return 5. The Profitability
More informationCapital Budgeting, Part I
Capital Budgeting, Part I Lakehead University Fall 2004 Capital Budgeting Techniques 1. Net Present Value 2. The Payback Rule 3. The Average Accounting Return 4. The Internal Rate of Return 5. The Profitability
More informationChapter 7: Investment Decision Rules
Chapter 7: Investment Decision Rules-1 Chapter 7: Investment Decision Rules I. Introduction and Review of NPV A. Introduction Q: How decide which long-term investment opportunities to undertake? Key =>
More informationCalculate the reserve per policy at the end of the first year. Profit=(BegReserve+Premium - Expense)(1+i) - Benefits - (EndReserve)( p )
Chapter 12 1. You are given the following for a five year term on (50): a. The gross premium payable annually is 300. b. The death benefit is 32,000 payable at the end of the year of death. c. Mortality
More informationSession 02. Investment Decisions
Session 02 Investment Decisions Programme : Executive Diploma in Accounting, Business & Strategy (EDABS 2017) Course : Corporate Financial Management (EDABS 202) Lecturer : Mr. Asanka Ranasinghe MBA (Colombo),
More informationTools and Techniques for Economic/Financial Analysis of Projects
Lecture No 12 /13 PCM Tools and Techniques for Economic/Financial Analysis of Projects Project Evaluation: Alternative Methods Payback Period (PBP) Internal Rate of Return (IRR) Net Present Value (NPV)
More informationUBU134 Financial appraisal of projects
UBU134 Financial appraisal of projects Unit reference number: H/615/5914 Level: 3 Guided Learning (GL) hours: 50 Overview Business decisions always involve choosing between various alternatives and deciding
More informationAsset Valuation Models Capital Budgeting Criteria Problem Set Boise State EMBA Byers
Asset Valuation Models Capital Budgeting Criteria Problem Set Boise State EMBA Byers Remember this is an individual assignment. You should start with a blank spreadsheet. Deliverable: submit your spreadsheet
More informationChapter 10 The Basics of Capital Budgeting: Evaluating Cash Flows ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS
Chapter 10 The Basics of Capital Budgeting: Evaluating Cash Flows ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS 10-1 a. Capital budgeting is the whole process of analyzing projects and deciding whether
More informationMULTIPLE-CHOICE QUESTIONS Circle the correct answer on this test paper and record it on the computer answer sheet.
M I M E 3 1 0 E N G I N E E R I N G E C O N O M Y Class Test #2 Thursday, 23 March, 2006 90 minutes PRINT your family name / initial and record your student ID number in the spaces provided below. FAMILY
More information2, , , , ,220.21
11-7 a. Project A: CF 0-6000; CF 1-5 2000; I/YR 14. Solve for NPV A $866.16. IRR A 19.86%. MIRR calculation: 0 14% 1 2 3 4 5-6,000 2,000 (1.14) 4 2,000 (1.14) 3 2,000 (1.14) 2 2,000 1.14 2,000 2,280.00
More informationIntroduction to Discounted Cash Flow
Introduction to Discounted Cash Flow Professor Sid Balachandran Finance and Accounting for Non-Financial Executives Columbia Business School Agenda Introducing Discounted Cashflow Applying DCF to Evaluate
More informationCapital Budgeting Decisions
May 1-4, 2014 Capital Budgeting Decisions Today s Agenda n Capital Budgeting n Time Value of Money n Decision Making Example n Simple Return and Payback Methods Typical Capital Budgeting Decisions n Capital
More informationLesson 7 and 8 THE TIME VALUE OF MONEY. ACTUALIZATION AND CAPITALIZATION. CAPITAL BUDGETING TECHNIQUES
Lesson 7 and 8 THE TIME VALUE OF MONEY. ACTUALIZATION AND CAPITALIZATION. CAPITAL BUDGETING TECHNIQUES Present value A dollar tomorrow is worth less than a dollar today. Why? 1) Present consumption preferred
More informationCS 413 Software Project Management LECTURE 8 COST MANAGEMENT FOR SOFTWARE PROJECT - II CASH FLOW ANALYSIS TECHNIQUES
LECTURE 8 COST MANAGEMENT FOR SOFTWARE PROJECT - II CASH FLOW ANALYSIS TECHNIQUES PAYBACK PERIOD: The payback period is the length of time it takes the company to recoup the initial costs of producing
More informationProject Management. Project Initiation. by Dr Mohd Yazid Faculty of Manufacturing Engineering
Project Management Project Initiation by Dr Mohd Yazid Faculty of Manufacturing Engineering myazid@ump.edu.my Project Initiation Aims To organize project initiation by developing strategies to support
More informationCapital Budgeting Decision Methods
Capital Budgeting Decision Methods 1 Learning Objectives The capital budgeting process. Calculation of payback, NPV, IRR, and MIRR for proposed projects. Capital rationing. Measurement of risk in capital
More informationMath Camp. September 16, 2017 Unit 3. MSSM Program Columbia University Dr. Satyajit Bose
Math Camp September 16, 2017 Unit 3 MSSM Program Columbia University Dr. Satyajit Bose Unit 3 Outline Financial Return Assessment Payback NPV IRR Capital Structure Equity/Mezzanine/Debt Math Camp Interlude
More informationChapter 14 Solutions Solution 14.1
Chapter 14 Solutions Solution 14.1 a) Compare and contrast the various methods of investment appraisal. To what extent would it be true to say there is a place for each of them As capital investment decisions
More informationThe nature of investment decision
The nature of investment decision Investment decisions must be consistent with the objectives of the particular organization. In private-sector business, maximizing the wealth of the owners is normally
More informationSoftware Economics. Introduction to Business Case Analysis. Session 2
Software Economics Introduction to Business Case Analysis Session 2 Today Last Session we covered FV, PV and NPV We started with setting up the financials of a Business Case We talked about measurements
More informationSession 4, Monday, April 3 rd (4:00-5:00)
Session 4, Monday, April 3 rd (4:00-5:00) Applied Statistical Tools: Risk and Capital Budgeting v2.0 2014 Association for Financial Professionals. All rights reserved. Session 12-1 Chapters Covered Risk
More informationINVESTMENT CRITERIA. Net Present Value (NPV)
227 INVESTMENT CRITERIA Net Present Value (NPV) 228 What: NPV is a measure of how much value is created or added today by undertaking an investment (the difference between the investment s market value
More informationInvestment decisions. Guidance and teaching advice. Basic principles
88 Investment decisions 09 Guidance and teaching advice We wrote this chapter with the premise that non-accounting students need to develop skills in using investment appraisal information to support good
More informationFinancial Analysis of Cogeneration Projects
Financial Analysis of Cogeneration Projects 2004 Cogeneration Week in Vietnam 6-9 April 2004 Rex Hotel, Ho Chi Minh City Alan Dale Gonzales Chief Business Advisor 1 Basic financial terms: A review Time
More informationNet Present Value Q: Suppose we can invest $50 today & receive $60 later today. What is our increase in value? Net Present Value Suppose we can invest
Ch. 11 The Basics of Capital Budgeting Topics Net Present Value Other Investment Criteria IRR Payback What is capital budgeting? Analysis of potential additions to fixed assets. Long-term decisions; involve
More informationChapter 7: Investment Decision Rules
Chapter 7: Investment Decision Rules -1 Chapter 7: Investment Decision Rules Note: Read the chapter then look at the following. Fundamental question: What criteria should firms use when deciding which
More informationChapter 6 Making Capital Investment Decisions
Making Capital Investment Decisions Solutions to Even-Numbered Problems and Cases 6.2 Manitoba Railroad Limited (MRL) (a) Discount Rate 7% Cash Cash Net Cash Cumulative Year Outflows Inflows Flows Cash
More informationTypes of investment decisions: 1) Independent projects Projects that, if accepted or rejects, will not affect the cash flows of another project
Week 4: Capital Budgeting Capital budgeting is an analysis of potential additions to fixed assets, long-term decisions involving large expenditures and is very important to a firm s future Therefore capital
More informationBFC2140: Corporate Finance 1
BFC2140: Corporate Finance 1 Table of Contents Topic 1: Introduction to Financial Mathematics... 2 Topic 2: Financial Mathematics II... 5 Topic 3: Valuation of Bonds & Equities... 9 Topic 4: Project Evaluation
More informationProject Integration Management
Project Integration Management The Key to Overall Project Success: Good Project Integration Management Project managers must coordinate all of the other knowledge areas throughout a project s life cycle.
More informationCAPITAL BUDGETING TECHNIQUES (CHAPTER 9)
CAPITAL BUDGETING TECHNIQUES (CHAPTER 9) Capital budgeting refers to the process used to make decisions concerning investments in the long-term assets of the firm. The general idea is that a firm s capital,
More informationFinance 303 Financial Management Review Notes for Final. Chapters 11&12
Finance 303 Financial Management Review Notes for Final Chapters 11&12 Capital budgeting Project classifications Capital budgeting techniques (5 approaches, concepts and calculations) Cash flow estimation
More informationCPET 581 Smart Grid and Energy Management Nov. 20, 2013 Lecture
CPET 581 Smart Grid and Energy Management Nov. 20, 2013 Lecture References [ 1] Mechanical and Electrical Systems in Building, 5 th Edition, by Richard R. Janis and William K.Y. Tao, Publisher Pearson
More informationMULTIPLE-CHOICE QUESTIONS Circle the correct answers on this test paper and record them on the computer answer sheet.
#18: /10 #19: /9 Total: /19 VERSION 1 M I M E 3 1 0 E N G I N E E R I N G E C O N O M Y Class Test #2 Wednesday, 12 November, 2008 90 minutes PRINT your family name / initial and record your student ID
More informationCAPITAL BUDGETING Shenandoah Furniture, Inc.
CAPITAL BUDGETING Shenandoah Furniture, Inc. Shenandoah Furniture is considering replacing one of the machines in its manufacturing facility. The cost of the new machine will be $76,120. Transportation
More informationCopyright Disclaimer under Section 107 of the Copyright Act 1976, allowance is made for "fair use" for purposes such as criticism, comment, news
Copyright Disclaimer under Section 107 of the Copyright Act 1976, allowance is made for "fair use" for purposes such as criticism, comment, news reporting, teaching, scholarship, and research. Fair use
More informationCapital Budgeting Process and Techniques 93. Chapter 7: Capital Budgeting Process and Techniques
Capital Budgeting Process and Techniques 93 Answers to questions Chapter 7: Capital Budgeting Process and Techniques 7-. a. Type I error means rejecting a good project. Payback could lead to Type errors
More informationFinancial analysis of cogeneration projects
Financial analysis of cogeneration projects 2004 Cogeneration Week in Cambodia 10-11 June 2004 Teo Hotel, Battambang Romel M. Carlos COGEN 3 Financial Advisor PROJECT DEVELOPMENT PROCESS Commissioning
More informationCommercestudyguide.com Capital Budgeting. Definition of Capital Budgeting. Nature of Capital Budgeting. The process of Capital Budgeting
Commercestudyguide.com Capital Budgeting Capital Budgeting decision is considered the most important and most critical decision for a finance manager. It involves decisions related to long-term investments
More informationCAPITAL BUDGETING. Key Terms and Concepts to Know
CAPITAL BUDGETING Key Terms and Concepts to Know Capital budgeting: The process of planning significant investments in projects that have long lives and affect more than one future period, such as the
More informationCHAPTER 13 RISK, COST OF CAPITAL, AND CAPITAL BUDGETING
CHAPTER 13 RISK, COST OF CAPITAL, AND CAPITAL BUDGETING Answers to Concepts Review and Critical Thinking Questions 1. No. The cost of capital depends on the risk of the project, not the source of the money.
More informationMBF1223 Financial Management Prepared by Dr Khairul Anuar
MBF1223 Financial Management Prepared by Dr Khairul Anuar L7 - Capital Budgeting Decision Models www.mba638.wordpress.com Learning Objectives 1. Explain capital budgeting and differentiate between short-term
More informationLecture 6 Capital Budgeting Decision
Lecture 6 Capital Budgeting Decision The term capital refers to long-term assets used in production, while a budget is a plan that details projected inflows and outflows during some future period. Thus,
More informationCA - FINAL 1.1 Capital Budgeting LOS No. 1: Introduction Capital Budgeting is the process of Identifying & Evaluating capital projects i.e. projects where the cash flows to the firm will be received
More informationReview of Financial Analysis Terms
Review of Financial Analysis Terms Financial Analysis Requirements Economic Evaluation of Potential TUR Techniques (310 CMR 50.46A) The TUR plan must include the discount rate, cost of capital, depreciation
More informationACCTG101 Revision MODULES 10 & 11 LITTLE NOTABLES EXCLUSIVE - VICKY TANG
ACCTG101 Revision MODULES 10 & 11 TIME VALUE OF MONEY & CAPITAL INVESTMENT MODULE 10 TIME VALUE OF MONEY Time Value of Money is the concept that cash flows of dollar amounts have different values at different
More informationFinancial Planning and Control. Semester: 1/2559
Financial Planning and Control Semester: 1/2559 Krisada Khruachalee Master of Science in Applied Statistics, Master of Science in Finance, Bachelor of Business Administration (Cum Laude), Finance and Banking
More informationInvestment Decision Criteria. Principles Applied in This Chapter. Learning Objectives
Investment Decision Criteria Chapter 11 1 Principles Applied in This Chapter Principle 1: Money Has a Time Value. Principle 2: There is a Risk-Return Tradeoff. Principle 3: Cash Flows Are the Source of
More informationCMA Part 2. Financial Decision Making
CMA Part 2 Financial Decision Making SU 8.1 The Capital Budgeting Process Capital budgeting is the process of planning and controlling investment for long-term projects. Will affect the company for many
More informationINVESTMENT APPRAISAL TECHNIQUES FOR SMALL AND MEDIUM SCALE ENTERPRISES
SAMUEL ADEGBOYEGA UNIVERSITY COLLEGE OF MANAGEMENT AND SOCIAL SCIENCES DEPARTMENT OF BUSINESS ADMINISTRATION COURSE CODE: BUS 413 COURSE TITLE: SMALL AND MEDIUM SCALE ENTERPRISE MANAGEMENT SESSION: 2017/2018,
More informationCOMM 298 INTRO TO FINANCE 2016 WINTER TERM2 [FINAL] BY LEAH ZHANG
COMM 298 INTRO TO FINANCE 2016 WINTER TERM2 [FINAL] BY LEAH ZHANG TABLE OF CONTENT I. Introduction II. Summary III. Sample Questions IV. Past Exams V. Q&A VI. Feedback Form INTRODUCTION Tutor: - Leah Zhang
More informationCA. Sonali Jagath Prasad ACA, ACMA, CGMA, B.Com.
MANAGEMENT OF FINANCIAL RESOURCES AND PERFORMANCE SESSIONS 3& 4 INVESTMENT APPRAISAL METHODS June 10 to 24, 2013 CA. Sonali Jagath Prasad ACA, ACMA, CGMA, B.Com. WESTFORD 2008 Thomson SCHOOL South-Western
More informationUniversity 18 Lessons Financial Management. Unit 2: Capital Budgeting Decisions
University 18 Lessons Financial Management Unit 2: Capital Budgeting Decisions Nature of Investment Decisions The investment decisions of a firm are generally known as the capital budgeting, or capital
More informationInternational Project Management. prof.dr MILOŠ D. MILOVANČEVIĆ
International Project Management prof.dr MILOŠ D. MILOVANČEVIĆ Project Evaluation and Analysis Project Financial Analysis Project Evaluation and Analysis The important aspects of project analysis are:
More informationThe Use of Modern Capital Budgeting Techniques. Howard Lawrence
The Use of Modern Capital Budgeting Techniques. Howard Lawrence No decision places a company in more jeopardy than those decisions involving capital improvements. Often these investments can cost billions
More informationWEEK 7 Investment Appraisal -1
WEEK 7 Investment Appraisal -1 Learning Objectives Understand the nature and importance of investment decisions. Distinguish between discounted cash flow (DCF) and nondiscounted cash flow (non-dcf) techniques
More informationOverview. Overview. Chapter 19 9/24/2015. Centre Point: Reversion Sale Price
Overview Chapter 19 Investment Decisions: NPV and IRR Major theme: most RE decisions are made with an investment motive magnitude of expected CFs--and the values they create are at the center of investment
More informationCHAPTER 2 LITERATURE REVIEW
CHAPTER 2 LITERATURE REVIEW Capital budgeting is the process of analyzing investment opportunities and deciding which ones to accept. (Pearson Education, 2007, 178). 2.1. INTRODUCTION OF CAPITAL BUDGETING
More informationWHAT IS CAPITAL BUDGETING?
WHAT IS CAPITAL BUDGETING? Capital budgeting is a required managerial tool. One duty of a financial manager is to choose investments with satisfactory cash flows and rates of return. Therefore, a financial
More informationTHE FINANCIAL EVALUTATION OF INVESTMENTS: THE TIME VALUE OF MONEY, THE PRESENT VALUE, NPV, IRR
THE FINANCIAL EVALUTATION OF INVESTMENTS: THE TIME VALUE OF MONEY, THE PRESENT VALUE, NPV, IRR Lesson 9 Castellanza, 15 th November 2017 SUMMARY The investment definition and analysis Financial value of
More informationLecture 3. Chapter 4: Allocating Resources Over Time
Lecture 3 Chapter 4: Allocating Resources Over Time 1 Introduction: Time Value of Money (TVM) $20 today is worth more than the expectation of $20 tomorrow because: a bank would pay interest on the $20
More informationWhy net present value leads to better investment decisions than other criteria
Why net present value leads to better investment decisions than other criteria Introduction: When deciding, wether or not it is worth making an investment, or leaving the capital in the bank, there are
More informationTHE BASICS OF CAPITAL BUDGETING
C H A P T E 11 R THE BASICS OF CAPITAL BUDGETING Competition in the Aircraft Industry In early 2005 Boeing was involved in a titanic struggle with European consortium Airbus SAS for dominance of the commercial
More informationFAQ: Capital Budgeting and Investment
Question 1: What are the strengths and weaknesses of the payback period method? Answer 1: The payback period method is a capital budgeting tool that is used to calculate the amount of time (usually in
More informationInvestment Decision Criteria. Principles Applied in This Chapter. Disney s Capital Budgeting Decision
Investment Decision Criteria Chapter 11 1 Principles Applied in This Chapter Principle 1: Money Has a Time Value. Principle 2: There is a Risk-Return Tradeoff. Principle 3: Cash Flows Are the Source of
More informationEssential Learning for CTP Candidates TEXPO Conference 2017 Session #02
TEXPO Conference 2017: Essential Learning for CTP Candidates Session #2 (Monday. 10:30 11:45 am) ETM5-Chapter 8: Financial Accounting and Reporting ETM5-Chapter 9: Financial Planning and Analysis Essentials
More informationTopics in Corporate Finance. Chapter 2: Valuing Real Assets. Albert Banal-Estanol
Topics in Corporate Finance Chapter 2: Valuing Real Assets Investment decisions Valuing risk-free and risky real assets: Factories, machines, but also intangibles: patents, What to value? cash flows! Methods
More informationFINANCE REVIEW. Page 1 of 5
Correlation: A perfect positive correlation means as X increases, Y increases at the same rate Y Corr =.0 X A perfect negative correlation means as X increases, Y decreases at the same rate Y Corr = -.0
More informationChapter 9. Capital Budgeting Decision Models
Chapter 9 Capital Budgeting Decision Models Learning Objectives 1. Explain capital budgeting and differentiate between short-term and long-term budgeting decisions. 2. Explain the payback model and its
More informationEconomic Evaluation. Objectives of Economic Evaluation Analysis
Economic Evaluation Objective of Analysis Criteria Nature Peculiarities Comparison of Criteria Recommended Approach Massachusetts Institute of Technology Economic Evaluation Slide 1 of 17 Objectives of
More informationSoftware Economics. Introduction to Business Case Analysis. Session 1
Software Economics Introduction to Business Case Analysis Session 1 Who am I? Sweden PhD Student in Computer Science (Business Process Management) Masters in Business Administration Worked with development
More information2/9/2010. Investment Appraisal. Investment Appraisal. Investment Appraisal. Investment Appraisal. Investment Appraisal. Investment Appraisal
A means of assessing whether an investment project is worthwhile or not Investment project could be the purchase of a new PC for a small firm, a new piece of equipment in a manufacturing plant, a whole
More informationCHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA
CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Learning Objectives LO1 How to compute the net present value and why it is the best decision criterion. LO2 The payback rule and some of its shortcomings.
More informationSeminar on Financial Management for Engineers. Institute of Engineers Pakistan (IEP)
Seminar on Financial Management for Engineers Institute of Engineers Pakistan (IEP) Capital Budgeting: Techniques Presented by: H. Jamal Zubairi Data used in examples Project L Project L Project L Project
More informationCapital Budgeting CFA Exam Level-I Corporate Finance Module Dr. Bulent Aybar
Capital Budgeting CFA Exam Level-I Corporate Finance Module Dr. Bulent Aybar Professor of International Finance Capital Budgeting Agenda Define the capital budgeting process, explain the administrative
More informationSoftware Economics. Metrics of Business Case Analysis
Software Economics Metrics of Business Case Analysis 2 Mida tähendab kahulik? A. Cloudy B. Poetic word for useful C. Hairy D. Slightly frozen Kui pikk on ajastaeg? A. One day B. One month C. One year D.
More informationOverview. Overview. Chapter 19 2/25/2016. Centre Point Office Building. Centre Point: Reversion Sale Price
Overview Chapter 19 Investment Decisions: NPV and IRR Major theme: most RE decisions are made with an investment motive magnitude of expected CFs--and the values they create are at the center of investment
More informationACC 501 Solved MCQ'S For MID & Final Exam 1. Which of the following is an example of positive covenant? Maintaining firm s working capital at or above some specified minimum level Furnishing audited financial
More informationINTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH AND REVIEW
INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH AND REVIEW A FUNDAMENTAL STUDY ON LONG- TERM INVESTMENT DECISION P. Selvam* 1, N. Punitavati 2 1 Assistant Professor, Department of Management studies, Alpha
More informationInvestment Appraisal
Investment Appraisal Introduction to Investment Appraisal Whatever level of management authorises a capital expenditure, the proposed investment should be properly evaluated, and found to be worthwhile
More information6.1 CAPITAL PROJECTS 6.2 CAPITAL BUDGETING PROCESS 6.3 CAPITAL PROJECT ANALYSIS 6.4 BUSINESS EXPANSION STRATEGIES
Chapter 6 Long-Term Financial Activities 6.1 CAPITAL PROJECTS 6.2 CAPITAL BUDGETING PROCESS 6.3 CAPITAL PROJECT ANALYSIS 6.4 BUSINESS EXPANSION STRATEGIES Lesson 6.1 Capital Projects Goals Describe types
More informationMULTIPLE-CHOICE QUESTIONS Circle the correct answer on this test paper and record it on the computer answer sheet.
M I M E 310 E N G I N E E R I N G E C O N O M Y Class Test #2 Thursday, 15 November, 2007 90 minutes PRINT your family name / initial and record your student ID number in the spaces provided below. FAMILY
More information