ACC 117 Lecture Notes - Lecture 25: Capital Budgeting, Net Present Value
4 Dec 2020
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Document Summary
Cash flow amounts of real dollars that will be available or saved. (does not include depreciation) Reduced cash outflows related to operating costs (savings) Salvage value of equipment when project is complete. The risk associated with a particular project. Proposal evaluation techniques equal and unequal cash flows. Cash payback- identifies the time period required to recover the cost of the capital investment from the annual cash flows produced by the investment. (recoup investment) Cost of capital investment / net annual cash inflow = cash. Shorter payback period than life of equipment acceptable. Does not consider the time value of money. Ignores any cash inflows beyond the payback period. Net present value method- cash inflows are discounted to their present value and then compared with the capital outlay required by the investment. + any salvage value x pv factor (pv ) Accept the project if the balance (npv) is positive. Reject the project- if the balance (npv) is negative.
