Management and Organizational Studies 2310A/B Study Guide - Final Guide: Net Present Value, Cash Flow, Capital Budgeting

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Stacey Hann

Document Summary

Chapter 9 - net present value and other investment criteria: Investment worth undertaking if it creates value for its owners. We create value by identifying an investment is worth more in the marketplace than it costs us to acquire. Suppose you buy and renovate a house. You put x amount of dollars in but when it goes up for sale you find out its worth more than you put in. The money you make from the difference is value added by management. Capital budgeting is determining whether a proposed investment or project will be worth more than it costs once it is in place. Net present value (npv) the difference between an investment"s market value and it"s cost. There is a risk and no guarantee that any estimates will turn out to be correct. Begin by trying to estimate the future cash flows that we expect the new business to produce.