B A 323 Lecture Notes - Lecture 11: Capital Budgeting, Cash Flow, Net Present Value
Document Summary
Capital budgeting - analysis of potential additions to fixed assets and rates of return. Strategic business plan - long run plan that outlines in broad terms the firm"s basic strategy for the next 5-10 years. Way to calculate if a project should happen (saying yes) Net present value is the best single method. Estimate cash flows (inflows and outflows) and find the present value of cash flows. How much it costs to make this investment. Accept if npv > 0 and/or irr > wacc. What is the difference between independent and mutually exclusive projects. Independent projects - if the cash flows of one are unaffected by the acceptance of the other. Mutually exclusive projects - if the cash flows of one can be adversely impacted by the acceptance of the other. Have one factory, you can only produce one thing. You choose one that makes the most money.
