SCBUS223 Lecture Notes - Lecture 5: Call Option, Qualitative Economics, Cash Flow
14 Oct 2016
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Highly structured innovation projects: quantitative models, benchmarking based on ratios. Capital rationing: fixed r&d budget and rank order projects to support (r&d budget is a % of previous year"s sales, % determined through industry/historical benchmarking of a firm"s performance) Serious constraints in capital and other resources can be invested projects. Industries fit with each other to support each other. New start-ups must focus on external financing (government grants and loans) Evaluations to estimate the attractiveness of an investment opportunity. Uses future free cash flow projections and discounts them to arrive at a present value estimate to evaluate investment potential. If the dcf value is higher than current cost of investment/profitability, the opportunity is good (qualitative shows something is better even if dcf is bad) Fcf represent the cash that a company is able to generate after spending the money required to maintain or expand its asset base.
