Capital Budgeting
Corporate Finance
Capital Budgeting
Course Outline
CAPITAL BUDGETING
Course outline
Key Principles in Capital Budgeting: Criteria for Investment Projects
Net Pesent Value Internal Rate of Return Payback Profitability Index
Finding Cash Flows
Maria Ruiz
1
Financial Management
Financial management is largely concerned with financing, dividend and investment decisions of the firm with some overall goal in mind. Corporate finance theory has developed around the goal of shareholder wealth maximization.
Financing decisions deal with the firm’s optimal capital structure in terms of debt and equity. Dividend decisions relate to the form in which returns generated by the firm are passed on to equity-holders. Investment decisions deal with the way funds raised in financial markets are employed in productive activities to achieve the firm’s overall goal.
Capital budgeting is primarily concerned with sizable investments in long-term assets. These assets may be tangible (property, plant or equipment) or intangible ones such as new technology, patents or trademarks. They are generally long-lived projects with their benefits or cash flows spreading over many years. As such, capital budgeting decisions have a major effect on the value of the firm and its shareholder wealth.
Maria Ruiz
Capital Budgeting
Capital Budgeting: An Introduction
Capital budgeting: one of the most important functions a financial manager must perform, required by the strategic planning and expansion of operations by allocating financial resources for the acquisitions of physical resources that will produce incremental future cash-flow and create value for shareholders:
Corporate investment projects:
Replacement decisions to maintain the business - made without detailed analysis for cost reduction or efficiency purposes – fairly detailed analysis
Expansion of existing products or markets – complex decision process that require an explicit forecast of future
Capital Budgeting
Course Outline
CAPITAL BUDGETING
Course outline
Key Principles in Capital Budgeting: Criteria for Investment Projects
Net Pesent Value Internal Rate of Return Payback Profitability Index
Finding Cash Flows
Maria Ruiz
1
Financial Management
Financial management is largely concerned with financing, dividend and investment decisions of the firm with some overall goal in mind. Corporate finance theory has developed around the goal of shareholder wealth maximization.
Financing decisions deal with the firm’s optimal capital structure in terms of debt and equity. Dividend decisions relate to the form in which returns generated by the firm are passed on to equity-holders. Investment decisions deal with the way funds raised in financial markets are employed in productive activities to achieve the firm’s overall goal.
Capital budgeting is primarily concerned with sizable investments in long-term assets. These assets may be tangible (property, plant or equipment) or intangible ones such as new technology, patents or trademarks. They are generally long-lived projects with their benefits or cash flows spreading over many years. As such, capital budgeting decisions have a major effect on the value of the firm and its shareholder wealth.
Maria Ruiz
Capital Budgeting
Capital Budgeting: An Introduction
Capital budgeting: one of the most important functions a financial manager must perform, required by the strategic planning and expansion of operations by allocating financial resources for the acquisitions of physical resources that will produce incremental future cash-flow and create value for shareholders:
Corporate investment projects:
Replacement decisions to maintain the business - made without detailed analysis for cost reduction or efficiency purposes – fairly detailed analysis
Expansion of existing products or markets – complex decision process that require an explicit forecast of future