MGFB10H3 Study Guide - Final Guide: Net Present Value, Capital Budgeting, Cash Flow
Document Summary
Note: the final is cumulative but for efficiency i will only explain concepts not covered in the midterm analysis. Capital budgeting is the process in which financial managers plan their capital (long-term) expenditures (investments) and assess the appropriateness of these expenditures (investments) from associated income and expenses. Don"t let the name scare you; capital budgeting is really no different from any kind of budgeting in nature. If you have ever created any budget of any sort, you possess the mental capacity to understand and perform capital budgeting. Now, you just have to learn the techniques used in capital budgeting. Net present value (npv): a measure used to assess the appropriateness of capital expenditure. It takes into account of all present and future cash flows (both inflows and outflows) associated with a certain project, and discount the cash flows back to present time. If the net present value is positive, then the project is profitable and we accept it.
