BUS 082 Lecture Notes - Lecture 11: Net Present Value, Capital Market, Cash Flow

• School: College of The Sequoias
• Department: Business (BUS)
• Course: BUS 082
• Professor: Cordero

Document Summary

More than one project is available but can only accept one. Build an office block or a shopping centre on a piece of land. Cash flows are identical regardless of whether other investments are accepted. Accepting one does not eliminate the others. Project blue and green are mutually exclusive. A firm"s aim is to maximise shareholders" wealth. Accept all projects with a positive npv. When firms have many good projects but a lack of capital they face capital rationing. Hard capital rationing: when capital market unwilling to provide funds, not a common situation. Soft capital rationing: when management limits the amount. Not prepared to accept conditions by lenders: 3. Managers want to limit equity issues: 4. Shows relative profitability of project or present value of benefits per dollar of cost. Pi = (npv + initial cost)/ initial cost: sometimes used for selecting projects under capital rationing. Goal for financial managers is to maximise shareholders" wealth.