ARBUS102 Lecture Notes - Lecture 19: Capital Budgeting, Working Capital, Net Present Value
6 Apr 2017
School
Department
Course
Professor
Document Summary
How managers plan significant cash outlays on projects that have long term implications. Typical capital budgeting decisions include cost reduction decisions, start-up decisions, expansion decisions, new product introduction decision, lease or buy decisions, equipment replacement decisions. There are two categories of capital budgeting decisions. Screening decisions: does a proposed project meet some present standard of acceptance. Preference decisions: selecting from among several competing courses of action. Time value of money: money is worth more now than it will be in the future. Emphasis on cash flows in capital budgeting the focus is on cash flows. Typical cash outflows initial investment: working capital needs, major repairs and servicing, annual operating costs. Typical cash inflows release of working capital reduction in costs: annual revenues, salvage value. Then the project is : acceptable, since it promises a return greater than the required rate of return, acceptable, since it promises return equal to the required rate of return.
