BUSI 530 Chapter Notes - Chapter 8: Net Present Value, Discount Window, Cash Flow
Document Summary
Chapter 8: net present value and other investment criteria. Capital investment project: any expenditure made in the hope of generating more cash later. Net present value: difference between a project"s value and its cost. Profitability index: net present value per dollar invested. Opportunity cost of capital: the minimum acceptable rate of return on capital investment is set by the investment opportunities available to shareholders in financial markets, determined by the risk of a project. States that managers increase shareholders" wealth by accepting projects that are worth more than they cost. Should accept all projects with a positive net present value when its cash flows are discounted at the opportunity cost of capital. Is positive if the opportunity cost of capital is less than the project rate of return. Is negative if the cost of capital is greater than the project rate of return. Steps (2: forecasting the cash flows, estimating the opportunity cost of capital.
