BUSI 530 Chapter 9: Chapter 9
Document Summary
Chapter 9: using discounted cash flow analysis to make investment decisions. When calculating npv, recognize investment expenditures when they occur, not later when they show up as depreciation. Projects are financially attractive because of the cash they generate, either for distribution to shareholders or for reinvestment in the firm. Therefore, the focus of capital budgeting must be on cash flow, not profits . Incremental cash flow = cash flow with project - cash flow without project: things to look out for (6, include all indirect effects, forget sunk costs. Remain the same whether or not you accept the project. Do not affect project net present value. They are past and irreversible cash outflows: include opportunity costs. Benefit or cash flow forgone as a result of an action. Equals the cash that could be realized from selling the land now and therefore is a relevant cash flow for project evaluation.
