BU467 Lecture Notes - Lecture 11: Capital Structure, Income Tax, Canada Revenue Agency

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Two dimension of cost analysis: project-by-project dimension one project spans multiple accounting periods, period-by-period dimension one period contains multiple projects. Capital budgeting: capital budgeting is making long-run planning decisions for investing in projects, capital budgeting is a decision-making and control tool that spans multiple years. Implementation and evaluate performance: obtain funding, track realized cash flows, compare results to project predictions, revise plans if necessary. Factors in investing decisions: non-financial factors, effect of an investment on market share, revenue mix, productivity, yield, environmental sustainability, qualitative factors, effect of an investment on corporate governance, perceived corporate social responsibility. Four capital budgeting methods: net present value (npv) Internal rate of return (irr: payback period, accrual accounting rate of return (aarr) Goal: find the dis(cid:272)ount rate for which npv = 0. If the calculated npv is greater than zero, use a higher discount rate. If the calculated npv is less than zero, use a lower discount rate: continue until npv = 0.

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