B A 323 Chapter Notes - Chapter 11: Net Present Value, Cash Flow, Payback Period
Document Summary
Strategic business plan - long-run plan that outlines in broad terms the firms basic strategy for the next 5 years. Following criteria for deciding to accept or reject projects: Best method because it addresses directly the central goal of financial management; maximizing shareholder wealth. Npv - method of ranking investment proposals using the npv, which is equal to the present value of the project"s free cash flows discounted at the cost of capital. Tells us how much a project contributes to shareholder wealth. Larger the npv< the more value the project adds. Independent projects - projects whose cash flows are not affected by one another. Mutually exclusive projects - projects where if one project is accepted, the other must be rejected. Accept the project with the highest positive npv. If no project has a positive npv, reject them all. Irr - discount rate that forces a project"s npv to equal zero.
