TAILIEUCHUNG - Lecture Fundamentals of corporate finance - Chapter 10: Making capital investment decisions

After studying this chapter, you should understand: How to determine the relevant cash flows for a proposed project, how to determine if a project is acceptable, how to set a bid price for a project, how to evaluate the equivalent annual cost of a project. | Chapter Outline Chapter 10 Making Capital Investment Decisions Chapter Organization Project Cash Flows: A First Look Incremental Cash Flows Pro Forma Financial Statements and Project Cash Flows More on Project Cash Flow Alternative Definitions of Operating Cash Flow Applying the Tax Shield Approach to MMC Some Special Cases of Discounted Cash Flow Analysis Summary and Conclusions CLICK MOUSE OR HIT SPACEBAR TO ADVANCE copyright © 2002 McGraw-Hill Ryerson, Ltd. Fundamental Principles of Project Evaluation Fundamental Principles of Project Evaluation: Project evaluation - the application of one or more capital budgeting decision rules to estimated relevant project cash flows in order to make the investment decision. Relevant cash flows - the incremental cash flows associated with the decision to invest in a project. The incremental cash flows for project evaluation consist of any and all changes in the firm’s future cash flows that are a direct consequence of taking the project. Stand-alone principle - evaluation of a project based on the project’s incremental cash flows. Incremental Cash Flows Key issue: When is a cash flow incremental? Terminology A. Sunk costs B. Opportunity costs C. Side effects D. Net working capital E. Financing costs F. Inflation G. Government Intervention H. Other issues Example: Preparing Pro Forma Statements Suppose we want to prepare a set of pro forma financial statements for a project for Norma Desmond Enterprises. In order to do so, we must have some background information. In this case, assume: 1. Sales of 10,000 units/year @ $5/unit. 2. Variable cost per unit is $3. Fixed costs are $5,000 per year. The project has no salvage value. Project life is 3 years. 3. Project cost is $21,000. Depreciation is $7,000/year. 4. Additional net working capital is $10,000. 5. The firm’s required return is 20%. The tax rate is 34%. Example: Preparing Pro Forma Statements .

• Tài chính doanh nghiệp
• Corporate finance
• Fundamentals of corporate finance
• Tài chính doanh nghiệp
• Business organization
• Financial management
• Making capital investment decisions
• Intermediate corporate finance
• Lecture Intermediate corporate finance
• Corporate valuation
• Value based management
• International corporate finance
• Capital market history
• Raising capital
• Financial leverage
• Financial reporting
• Social welfare
• Forward contracts
• The stock markets
• Basic return concepts
• Portfolio theory
• Bond valuation
• Basic stock valuation
• Accounting for financial management
• Analysis of financial statements
• Financial planning
• Forecasting financial statements
• Capital budgeting
• Decision criteria
• Estimating cash flows
• Real options
• Capital structure decisions
• The levered firm
• Cash management
• Financial distress
• Hedging risk
• Warrants and convertibles
• Principles of corporate finance
• Understanding options
• Valuing options
• Financial analysis
• Financial manager
• Financial institutions