Management and Organizational Studies 3370A/B Chapter Notes - Chapter 13: Discounted Cash Flow, Capital Budgeting, Earnings Before Interest And Taxes

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Capital budgeting decisions- chapter 13: capital budgeting- the process of planning significant outlays on projects that have long-term implications, such as: purchasing new equipment or introducing a new product. Discounted cash flows- the net present value method: the net present value method, to determine net present value, we, calculate the present value of cash inflows, calculate the present value of cash outflows. Subtract the present value of the outflows from the present value of the inflows: general decision rule. Acceptable- promises a greater return than the required rate of return. Acceptable- promises a return equal to the required rate of return. Incremental cost approach: only those cash flows that differ between the 2 alternatives are considered, typical cash outflows, periodic outlays for repairs and maintenance. Incremental operating costs: expansion of working capital, current assets (cash, a/r, inventory) current liabilities, typical cash inflows, salvage value realized from sale of old equipment or assets, reduction of costs.

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