RSM333H1 Lecture Notes - Lecture 4: Net Present Value, Time Signature, Capital Budgeting
Document Summary
13. 1: capital expenditures: capital expenditures: investment in long-term assets (tangible or intangible, better capital expenditure means more wealth. Assets create revenue which create profit/wealth: capital budgeting: 3: monitor and evaluate implemented decisions, poor investment decisions make firm less attractive. Lower market price of debt/equity: higher cost of capital, can create competitive advantage through, cost leadership, economies of scale, proprietary technology, focuses on replacement decisions. Use newest technology to lower production cost: differentiation, focuses on new product development decisions, competitive advantages are difficult to sustain. Especially if barriers to entry are low, industry is competitive. Which industry/products firms should be involved in. 13. 2 evaluating investment alternatives: should use all available methods to evaluate a project. Payback period and discounted payback period: payback period: years required to recover initial cash outlay, discounted payback period: years to recover initial cash outlay in terms of discounted cash flows, shows timing of cash flows. When does firm earn back initial investment.
