Hussain A. Al Awami, B.Sc. Pharm., M.Sc., MBA
The Basics of majuscule Bud allowing: Evaluating Cash Flow
Chapter X
skill Objectives
Non-discounted methods Discounted methods
Capital Budgeting
Project classifications
Relevant bills emanates estimation
Issues
Overview of crownwork budgeting Capital budgeting decision rules:
requital arrest Discounted payback period NPV IRR MIRR positivity index
Overview of capital budgeting
What is capital budgeting?
Analysis of potential suggests. Deciding which unmatchable is more important Adds to the firm economic value
Importance of capital budgeting
strategic direction Long term decision and effects perish long time It might have serious financial consequences
Capital budgeting success
Flow of ideas Proper incentive Screening option by priority
Does all projects require capital budgeting?
Cost of capital budgeting should be considered Simple or complicated decisions Value of coronation to the firm
Independent & mutually exclusive projects?
Projects are: independent, if the cash flows of virtuoso are unaffected by the acceptance of the other. mutually exclusive, if the cash flows of one can be adversely impacted by the acceptance of the other.
Capital Budgeting Decision Rules
Capital budgeting decision rules
requital period Discounted payback period NPV IRR MIRR Profitability index
What is the payback period?
The number of years required to recover a projects cost, or how long does it take to get the business concerns money back?
Strengths of Payback: 1. Provides an indication of a projects risk and liquidity. 2. Easy to calculate and understand. Weaknesses of Payback: 1. Ignores the TVM. 2. Ignores CFs occurring after the payback period.
Discounted Payback period
NPV
Net present value depends on DCF Steps:
Find PV for each cash flow Sum all Take positive NPV
NPV
NPV
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