BU393 Study Guide - Midterm Guide: Discounted Cash Flow, Capital Gain, Tax Shield
Document Summary
Net present value and other investment rules (chapter 7) Capital budgeting (cb): the cb decision is the process in which long term investments are generated, analyzed and undertaken. Goal: to maximise firm value: good investment decisions increase firm value, maximizing does not equal maximizing profits, thus accept positive npv projects these benefit shareholders and the firm and will increase firm value. Firm value: summation of all future profits for t years thus must take future profit into consideration. Value is typically a long term idea while profits are short term. Firms cannot maximize value by being unethical, in the long run they will lose value. Major stakeholders: owners and debt holders, employees, suppliers, customers. Shareholders / debt holders honesty, full discloser, giving all information, maximize firm value b/c you are using other people money (don"t maximize your own value) Employees fair pay, pension, benefits, work life balance, opportunity for advancement, opportunity to develop human capital (learn and receive training)
