Management and Organizational Studies 2310A/B Study Guide - Midterm Guide: Net Present Value, Cash Flow, Capital Budgeting

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Nicholas Kahnert

Document Summary

Chapter 9 net present value and other investment criteria. We identify an investment that is worth more in the marketplace than it costs us to acquire. Managers will bring together some fixed assets and some labour and other materials the net result will be a profit (value added) Start-up costs can be reasonable estimated as we know what we need. Discounted cash flow valuation: the process of valuing an investment by discounting. Present value of future cash flows = (total revenues total expenses) x (1-1/(1+r)t/r + its future cash flows. Npv = -c0 + c1/(1+r)1 + c2/(1+r)2 + cn/(1+r)n. Payback period: the amount of time required for an investment to generate cash flows to recover its initial cost. Based on the payback rule, an investment is acceptable if its calculated payback is less than some prespecified number of years: when numbers don"t work out exactly, we use fractional years (ex: 1 and 4/9 years)