BU393 Study Guide - Midterm Guide: Cash Flow, Capital Budgeting, Net Present Value
Document Summary
Process in which long term investments are generated, analyzed and undertaken. Goal is to maximize firm value (doesn"t mean maximize profits: done by accepting projects which are high in npv, can"t be done by being unethical. People buy goods based on if the company is ethical (unethical = less sales) Investing in unethical firms = negative returns, no ethics code = less economic and market value. Bad for employee fraud, turnover, and absenteeism. Considers all cash flows and accounts for tvm. Process: search for and identify growth opportunities, estimate, magnitude, timing and riskiness of cash flows, select or reject projects, place project in capital budget, make investment outlays, audit. By type: expansion: increase product line. Improved ability to produce or market product: replacement: replace assets that have become obsolete, mandatory: legislated by government or other regulatory body. By relationship: mutually exclusive: can only decide on one. Can"t have both: independent: decision to accept one is unrelated to accepting the other.
