MGT 5 Chapter Notes - Chapter 12: Discounted Cash Flow, Capital Budgeting, Cash Flow
31 Jul 2017
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Lo 1: describe capital budgeting inputs and apply the cash payback technique. For purposes of capital budgeting, though, estimated cash inflows and outflows are the preferred inputs. Capital budgeting decision: depends on the availability of funds, relationships among proposed proje(cid:272)ts, the (cid:272)o(cid:373)pa(cid:374)y"s (cid:271)asi(cid:272) de(cid:272)isio(cid:374)-making approach, the risk associated with a particular project. Cash payback technique: cost of capital investment / net annual cash flow = cash payback period. The shorter the payback period, the more attractive the investment. Lo 2: use the net present value method. Discounted cash flow techniques: capital budgeting techniques that take into account both the time value of money and the estimated net cash fl ows from an investment. Net present value (npv) method: involves discounting net cash fl ows to their present value and then comparing that present value with the capital outlay required by the investment. Net present value (npv): the difference between these two amounts.
