COMMERCE 2FA3 Chapter Notes - Chapter 6: Capital Budgeting, Net Present Value, Cash Flow
31 Dec 2017
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Topic 5/chapter 6 2fa3 intro to canadian finance notes. Process in which a business determines and evaluates potential expenses or investments that are large i. e. building a new plant, investing in a long-term venture: should enhance shareholder value, yield most return possible. Examples: company invests 1 million in a project that will save the company 250,00 every year. Divide 1 million by 250,000 to arrive at 4 years to pay back investment: the cost of a project is ,000 but it will make the company 100,000 every year for the next 20 years (2 million). It will take ,000/,000=2 years to pay back: the initial cost of a project is ,000 and will generate cash flows of year 1: , year. 2: , year 3: and year 4: . Net present value (npv: the best decision-making rule; the difference between the present value of the proje(cid:272)t"s (cid:272)ash inflo(cid:449)s and the present (cid:448)alue of the proje(cid:272)t"s outflo(cid:449)s.
