Management and Organizational Studies 2310A/B Chapter 9: CHAPTER RECAP

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Capital budget: a list of the projects that a company plans to undertake during the next period. To create this list, firm"s analyze alternative projects and decide which ones to accept through a process called capital budgeting. : the process of analyzing investment opportunities and deciding which ones to accept. This process begins with forecasts of each project"s future consequences to the firm. Need to rely on many experts within the firm to obtain estimations. Look at past projects of the firm. Incremental earnings: the amount by which a firm"s earnings are expected to change as a result of an investment decision. Tells us how the decision will affect the firm"s reported profits from an accounting perspective. But earnings are not actual cash flows. We need to estimate the project"s cash flows to determine the npv and decide if it"s a project worth executing.

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