COMM 308 Chapter Notes - Chapter 14: Opportunity Cost, Sunk Costs, Dividend Discount Model
24 Oct 2016
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Cash flow estimation and capital budgeting decisions. 14. 1 general guidelines for capital expenditure analysis: estimate all cash flows on after-tax basis. Taxes can play important role in any investment decision. Assume that any initial change in working capital is reversed at end of project"s life. Abandonment decisions need to be considered, since projects are finished when it"s economical to do so. 8. ignore intangible considerations that can"t be measured in financial analysis, unless their impact on cash flows can be estimated. Intangible benefits are often used to justify poor projects. If there are spinoffs, they should be analyzed and incorporated into the analysis, however difficult it is to do so. 9. in calculations, ignore externality - consequence that results from investment that may benefit or harm unrelated third parties. 10. consider effect of all project interdependencies on cash flow estimates.
