The document discusses various concepts and methods related to capital budgeting, including calculating relevant cash inflows and outflows, depreciation under straight line and diminishing balance methods, and techniques for financial project appraisal such as payback period, accounting rate of return, net present value, and internal rate of return. Examples are provided to illustrate the calculation of each method. The goal is to help students understand the importance of capital budgeting in business and how different techniques can be used to evaluate investment projects.
The document discusses capital budgeting, which refers to investment decisions organizations make regarding large capital projects or assets. It covers several key aspects of capital budgeting including: the importance of these decisions given factors like large amounts of money involved and long-term impact; various capital budgeting techniques used to evaluate projects like payback period, net present value (NPV), and internal rate of return (IRR); and how to apply these techniques to calculate metrics and determine which projects to accept.
The document discusses various capital budgeting techniques used to evaluate investment projects, including payback period and net present value (NPV). It provides examples of how to calculate payback period for projects with both uniform and non-uniform cash flows. It also discusses the limitations of payback period as a capital budgeting method. The document then introduces NPV as a discounted cash flow technique and provides the formula for calculating NPV. It states that projects with positive NPV should be accepted while projects with negative NPV should be rejected.
Capital budgeting is the process of evaluating long-term investments to maximize shareholder wealth. It involves assessing projects that require fixed assets operating for over one year. The key evaluation techniques are payback period, net present value (NPV), and internal rate of return (IRR), with NPV preferred as it considers total cash flows over time. NPV accepts projects when the present value of inflows exceeds outflows, while IRR accepts projects when the rate of return exceeds the cost of capital.
The document discusses present worth analysis and evaluating mutually exclusive project alternatives. It provides examples of calculating net present worth (NPW) to evaluate single projects and compare alternatives. The key points are:
1. Present worth analysis uses discounted cash flow techniques to calculate the net present value (NPW) of projects by discounting cash inflows and outflows.
2. Projects with a positive NPW that exceeds the minimum acceptable rate of return should be accepted.
3. Mutually exclusive alternatives must be compared over an equal time period using NPW.
4. The analysis period may differ from project lifetimes, requiring adjustments like estimating salvage value.
The discounted payback period is 3 years. In year 3, the cumulative discounted cash flows of $3,636 + $3,719 + $7,513 = $14,868 exceeds the initial investment of $10,000.
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices.
The document discusses capital budgeting, which refers to investment decisions organizations make regarding large capital projects or assets. It covers several key aspects of capital budgeting including: the importance of these decisions given factors like large amounts of money involved and long-term impact; various capital budgeting techniques used to evaluate projects like payback period, net present value (NPV), and internal rate of return (IRR); and how to apply these techniques to calculate metrics and determine which projects to accept.
The document discusses various capital budgeting techniques used to evaluate investment projects, including payback period and net present value (NPV). It provides examples of how to calculate payback period for projects with both uniform and non-uniform cash flows. It also discusses the limitations of payback period as a capital budgeting method. The document then introduces NPV as a discounted cash flow technique and provides the formula for calculating NPV. It states that projects with positive NPV should be accepted while projects with negative NPV should be rejected.
Capital budgeting is the process of evaluating long-term investments to maximize shareholder wealth. It involves assessing projects that require fixed assets operating for over one year. The key evaluation techniques are payback period, net present value (NPV), and internal rate of return (IRR), with NPV preferred as it considers total cash flows over time. NPV accepts projects when the present value of inflows exceeds outflows, while IRR accepts projects when the rate of return exceeds the cost of capital.
The document discusses present worth analysis and evaluating mutually exclusive project alternatives. It provides examples of calculating net present worth (NPW) to evaluate single projects and compare alternatives. The key points are:
1. Present worth analysis uses discounted cash flow techniques to calculate the net present value (NPW) of projects by discounting cash inflows and outflows.
2. Projects with a positive NPW that exceeds the minimum acceptable rate of return should be accepted.
3. Mutually exclusive alternatives must be compared over an equal time period using NPW.
4. The analysis period may differ from project lifetimes, requiring adjustments like estimating salvage value.
The discounted payback period is 3 years. In year 3, the cumulative discounted cash flows of $3,636 + $3,719 + $7,513 = $14,868 exceeds the initial investment of $10,000.
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices.
The document discusses various investment criteria for capital budgeting decisions, with a focus on net present value (NPV). It defines NPV as the difference between the present value of a project's expected future cash flows and the initial investment cost. The document also discusses other criteria like payback period, accounting rate of return, and internal rate of return. It provides examples to demonstrate how to calculate NPV and compares it to other criteria. It emphasizes that NPV is preferable because it considers the time value of money and risk, and indicates whether a project will increase firm value.
This document discusses capital expenditure and capital budgeting. It defines capital expenditure as long-term investment that increases revenues or decreases costs over time. Examples include purchasing fixed assets, expanding existing assets, and replacing assets. Capital budgeting involves planning and evaluating capital expenditures and returns over future periods. The document then discusses various capital budgeting techniques like payback period, accounting rate of return, net present value, and internal rate of return to evaluate projects. It provides examples of calculating each method and their respective merits and demerits.
The document discusses various capital budgeting techniques used to evaluate long-term investment projects. It describes traditional methods like payback period and accounting rate of return, as well as discounted cash flow methods like net present value, internal rate of return, and profitability index. These time-adjusted methods account for the time value of money and required rate of return when analyzing projects. The document also discusses factors that introduce risk and uncertainty into capital budgeting decisions.
Capital budgeting involves planning expenditures for long-term assets that provide returns over several years. It is an important process that requires evaluating projects carefully due to their large size, long-term implications, and irreversible nature. Key aspects of capital budgeting include identifying and evaluating investment proposals, determining which provide the highest expected rates of return, and preparing a capital expenditure budget. Various techniques can be used to evaluate projects, including payback period, accounting rate of return, net present value, internal rate of return, and risk-adjusted methods that account for uncertainty in projected cash flows.
Capital budgeting is the process of analyzing projects and determining which to include in the capital budget. It involves evaluating long-term investment projects involving large capital outlays. There are various evaluation criteria used for capital budgeting including net present value (NPV), internal rate of return (IRR), payback period, discounted payback period, and profitability index. Generally, NPV is considered the best method but companies often consider multiple criteria as each provides different relevant information for decision making.
This document discusses various investment criteria for capital budgeting decisions, with a focus on net present value (NPV). It defines NPV as the difference between the present value of a project's future cash flows and the initial investment cost. The document provides examples of calculating NPV for projects and discusses how NPV accounts for the time value of money and risk. It also discusses other criteria like payback period, accounting rate of return, and internal rate of return. It notes that the internal rate of return is the discount rate that makes the NPV equal to zero. The document compares the advantages and disadvantages of each method and emphasizes that NPV is generally the best criteria to use for capital budgeting decisions.
Any incorporated company at the end of the financial year is required to prepare financial statements showing the assets & liabilities, profit or loss for the period, a cash flow statement &get it audited. the audited statements along with the auditor's report & directors report with all schedules is to be submitted to the ROC, shareholders at the annual general meeting, banks, financial institutions, all stakeholders.etc
These statements form the basis of ANALYSIS, WHICH CAN BE (A) VERTICAL ANALYSIS ( B)HORIZONTAL ANALYSIS (C )COMPARITIVE STATEMENTS (D)COST ANALYSIS (E)CASH FLOW ANALYSIS AND SO ON 'The main feature of these analyses will be explained with illustrative examples
Capital Budgeting I Principles and Techniques_MODIFIED.pptKrithikK11
This document discusses capital budgeting and investment decision making. It defines capital budgeting as the exchange of current funds for future benefits through long-term investments. It highlights the importance of investment decisions in areas like growth, risk, funding, and complexity. It also describes different types of investment decisions and criteria for evaluating investments, including estimating cash flows, required rates of return, and decision rules like net present value (NPV) and internal rate of return (IRR). The document provides examples of calculating NPV and IRR to determine whether projects should be accepted.
Capital Budgeting Techniques (Investment Decision Rules) (Measuring Return on Investment)
This document discusses various capital budgeting techniques used to evaluate long-term investment projects, including net present value (NPV), internal rate of return (IRR), payback period (PP), discounted payback period (DPP), and profitability index (PI). It provides examples of how to calculate these metrics and compares their strengths and weaknesses in accepting or rejecting investment projects.
The document discusses various investment decision concepts including investment, risk and return, capital budgeting techniques, and types of capital expenditures (capex). It provides examples of each type of capex - expansion, diversification, modernization, research & development, and miscellaneous. The capital budgeting techniques discussed include payback period, accounting rate of return, net present value, internal rate of return, and profitability index. Examples are provided to illustrate how to use the payback period technique to evaluate investment opportunities.
All Over Fitness is considering opening a new office in Melbourne. To analyze the investment, the team conducted a financial analysis of the initial costs, annual cash flows over 10 years, and the final cash flow. They calculated an NPV of $82,323 using a 10.28% discount rate. Sensitivity analysis showed the NPV is highly sensitive to revenue growth assumptions. The team recommends accepting the project due to the positive NPV but notes the risk from uncertain revenue growth.
The document discusses capital budgeting and estimating cash flows. It defines capital budgeting as identifying, analyzing, and selecting investment projects with returns extending beyond one year. The capital budgeting process involves generating proposals, estimating after-tax cash flows, evaluating projects, selecting projects, and reevaluating implemented projects. It provides examples of estimating initial cash outflows, incremental cash flows, and terminal cash flows for new asset and replacement projects.
1) The document discusses key concepts for capital investment decisions including determining relevant cash flows, computing depreciation, and methods for calculating operating cash flow.
2) It emphasizes that only incremental cash flows from accepting a project should be included in the analysis. Common types of cash flows are discussed.
3) Pro forma financial statements and tables are presented to illustrate how to project cash flows, capital requirements, and total cash flows for making the investment decision.
Capital Budgeting And Investment Decisions In Financial Management 11 Nov.Dr. Trilok Kumar Jain
The document discusses capital budgeting and investment decisions. It provides examples of calculating net present value (NPV), internal rate of return (IRR), payback period, and modified internal rate of return (MIRR) for projects. It also discusses types of capital budgeting decisions, criteria for evaluation, and traditional vs discounted cash flow methods.
The document discusses various capital budgeting techniques used to evaluate investment projects. It defines capital budgeting as involving the calculation of future cash flows, present value, internal rate of return, payback period and other factors to determine the profitability of projects. Several capital budgeting methods are described, including net present value (NPV), internal rate of return (IRR), profitability index (PI) and payback period. An example compares two investment projects using these techniques, and recommends project B based on it having a shorter payback period, higher accounting rate of return, and greater NPV and PI.
This document discusses various capital budgeting techniques for evaluating investment projects. It defines the payback period method, internal rate of return, net present value, and profitability index. For each method, it provides the calculation, acceptance criteria, and strengths and weaknesses. It then works through an example project at a company called Basket Wonders, calculating the payback period, IRR, NPV, and PI to determine if the project should be accepted based on the company's criteria.
The document discusses various capital budgeting techniques used to evaluate projects and determine which to accept. It covers concepts like initial cash outlay, cash flows, payback period and its limitations. It then introduces net present value as a technique that considers the time value of money and all cash flows by discounting them to calculate the present value of future cash inflows and outflows.
The document discusses key concepts for estimating and analyzing project cash flows including: the elements of a cash flow stream; principles for cash flow estimation such as separation, incremental, post-tax, and consistency; perspectives to view cash flows from; and biases that can impact cash flow forecasting. Accurately estimating cash flows is important but difficult, and requires coordinating across departments while following principles and addressing inherent biases to produce reliable forecasts.
1 Time Value of MoneyMilestone One Time Value of Money (please fi.docxmonicafrancis71118
1 Time Value of MoneyMilestone One: Time Value of Money (please fill in YELLOW cells) Explanations:Interest Rate8% FCF (Free Cash Flows) is the net change in cash generated by the operations of a business during a reporting period, minus cash outlays for working capital, capital expenditures, and dividends during the same period. This is a strong indicator of the ability of an entity to remain in business.
Note: For Milestone One, please use the Free Cash Flows from the United Parcel Service 2017 Annual Report for the years 2015, 2016, and 2017 located on Page 2 of the Report.
FCF - YearsFCF - 2015FCF - 2016FCF - 2017Amounts*6,0826,0073,573Pv*(5,631.48)(5,150.03)(2,836.36)Total Pv*(13,617.88)*In millionsInterest Rate (given) - For purposes of this exercise, use 8% interest rate. Pv=FVN/(1+I)^NPV(I,N,0,FV)With 10% decrease in FCFInterest Rate8%FCF - YearsFCF - 2015FCF - 2016FCF - 2017Amounts*5,4745,4063,216Pv*(5,068.33)(4,635.03)(2,552.73)Total Pv*(12,256.09)*In millions
2 Stock and Bond ValuationMilestone Two: Stock Valuation and Bond Issuance (fill in the YELLOW cells) PART I: STOCK VALUATIONDividend from Financial Statements:Read the Explanations to the right of the calculation cells for specific information on the data.Explanations:Year Cash Div/share ($)Dividend YieldStockholder's Equity (in millions)Stock PriceNote:
1. The dividends declared and paid by UPS for 2015, 2016, and 2017 are found on the second page of the 2017 UPS Annual Report.
2. The dividend yield for 2015, 2016, and 2017 are found on the second page of the 2017 UPS Annual Report.
3. Stockholder's/Shareholder's equity for 2015, 2016, and 2017 are found on the second page of the UPS Annual Report. 20152.923.00%2,49197.333333333320163.122.70%429115.555555555620173.322.60%1,030127.69230769231. Stock Valuation - The new dividend yield if the company increased its dividend per share by 1.75Year Cash Div/Share ($) +1.75Dividend YieldStockholder's Equity (in millions)Stock PriceDividend Yield - annual cash dividend per share of common stock divided by the market price of a share of the common stock. (Dividend yield = Annual Dividend/Current Stock Price)
Note: Current Stock Price is not part of the Financial Statements - calculated using the formula for Dividend Yield20154.674.80%2,49197.333333333320164.874.21%429115.555555555620175.073.97%1,030127.69230769232. The dividend yield if the firm doubled it's outstanding sharesYear Cash Div/Share ($) Dividend YieldStockholder's Equity (in millions) -doubledStock PriceStockholder's Equity = Assets - Liabilities. This represents the ownership of a corporations. Owners are called stockholder because they hold stocks or share of the company. The main goal of every corporate manager is to generate shareholder value. .
The document discusses various investment criteria for capital budgeting decisions, with a focus on net present value (NPV). It defines NPV as the difference between the present value of a project's expected future cash flows and the initial investment cost. The document also discusses other criteria like payback period, accounting rate of return, and internal rate of return. It provides examples to demonstrate how to calculate NPV and compares it to other criteria. It emphasizes that NPV is preferable because it considers the time value of money and risk, and indicates whether a project will increase firm value.
This document discusses capital expenditure and capital budgeting. It defines capital expenditure as long-term investment that increases revenues or decreases costs over time. Examples include purchasing fixed assets, expanding existing assets, and replacing assets. Capital budgeting involves planning and evaluating capital expenditures and returns over future periods. The document then discusses various capital budgeting techniques like payback period, accounting rate of return, net present value, and internal rate of return to evaluate projects. It provides examples of calculating each method and their respective merits and demerits.
The document discusses various capital budgeting techniques used to evaluate long-term investment projects. It describes traditional methods like payback period and accounting rate of return, as well as discounted cash flow methods like net present value, internal rate of return, and profitability index. These time-adjusted methods account for the time value of money and required rate of return when analyzing projects. The document also discusses factors that introduce risk and uncertainty into capital budgeting decisions.
Capital budgeting involves planning expenditures for long-term assets that provide returns over several years. It is an important process that requires evaluating projects carefully due to their large size, long-term implications, and irreversible nature. Key aspects of capital budgeting include identifying and evaluating investment proposals, determining which provide the highest expected rates of return, and preparing a capital expenditure budget. Various techniques can be used to evaluate projects, including payback period, accounting rate of return, net present value, internal rate of return, and risk-adjusted methods that account for uncertainty in projected cash flows.
Capital budgeting is the process of analyzing projects and determining which to include in the capital budget. It involves evaluating long-term investment projects involving large capital outlays. There are various evaluation criteria used for capital budgeting including net present value (NPV), internal rate of return (IRR), payback period, discounted payback period, and profitability index. Generally, NPV is considered the best method but companies often consider multiple criteria as each provides different relevant information for decision making.
This document discusses various investment criteria for capital budgeting decisions, with a focus on net present value (NPV). It defines NPV as the difference between the present value of a project's future cash flows and the initial investment cost. The document provides examples of calculating NPV for projects and discusses how NPV accounts for the time value of money and risk. It also discusses other criteria like payback period, accounting rate of return, and internal rate of return. It notes that the internal rate of return is the discount rate that makes the NPV equal to zero. The document compares the advantages and disadvantages of each method and emphasizes that NPV is generally the best criteria to use for capital budgeting decisions.
Any incorporated company at the end of the financial year is required to prepare financial statements showing the assets & liabilities, profit or loss for the period, a cash flow statement &get it audited. the audited statements along with the auditor's report & directors report with all schedules is to be submitted to the ROC, shareholders at the annual general meeting, banks, financial institutions, all stakeholders.etc
These statements form the basis of ANALYSIS, WHICH CAN BE (A) VERTICAL ANALYSIS ( B)HORIZONTAL ANALYSIS (C )COMPARITIVE STATEMENTS (D)COST ANALYSIS (E)CASH FLOW ANALYSIS AND SO ON 'The main feature of these analyses will be explained with illustrative examples
Capital Budgeting I Principles and Techniques_MODIFIED.pptKrithikK11
This document discusses capital budgeting and investment decision making. It defines capital budgeting as the exchange of current funds for future benefits through long-term investments. It highlights the importance of investment decisions in areas like growth, risk, funding, and complexity. It also describes different types of investment decisions and criteria for evaluating investments, including estimating cash flows, required rates of return, and decision rules like net present value (NPV) and internal rate of return (IRR). The document provides examples of calculating NPV and IRR to determine whether projects should be accepted.
Capital Budgeting Techniques (Investment Decision Rules) (Measuring Return on Investment)
This document discusses various capital budgeting techniques used to evaluate long-term investment projects, including net present value (NPV), internal rate of return (IRR), payback period (PP), discounted payback period (DPP), and profitability index (PI). It provides examples of how to calculate these metrics and compares their strengths and weaknesses in accepting or rejecting investment projects.
The document discusses various investment decision concepts including investment, risk and return, capital budgeting techniques, and types of capital expenditures (capex). It provides examples of each type of capex - expansion, diversification, modernization, research & development, and miscellaneous. The capital budgeting techniques discussed include payback period, accounting rate of return, net present value, internal rate of return, and profitability index. Examples are provided to illustrate how to use the payback period technique to evaluate investment opportunities.
All Over Fitness is considering opening a new office in Melbourne. To analyze the investment, the team conducted a financial analysis of the initial costs, annual cash flows over 10 years, and the final cash flow. They calculated an NPV of $82,323 using a 10.28% discount rate. Sensitivity analysis showed the NPV is highly sensitive to revenue growth assumptions. The team recommends accepting the project due to the positive NPV but notes the risk from uncertain revenue growth.
The document discusses capital budgeting and estimating cash flows. It defines capital budgeting as identifying, analyzing, and selecting investment projects with returns extending beyond one year. The capital budgeting process involves generating proposals, estimating after-tax cash flows, evaluating projects, selecting projects, and reevaluating implemented projects. It provides examples of estimating initial cash outflows, incremental cash flows, and terminal cash flows for new asset and replacement projects.
1) The document discusses key concepts for capital investment decisions including determining relevant cash flows, computing depreciation, and methods for calculating operating cash flow.
2) It emphasizes that only incremental cash flows from accepting a project should be included in the analysis. Common types of cash flows are discussed.
3) Pro forma financial statements and tables are presented to illustrate how to project cash flows, capital requirements, and total cash flows for making the investment decision.
Capital Budgeting And Investment Decisions In Financial Management 11 Nov.Dr. Trilok Kumar Jain
The document discusses capital budgeting and investment decisions. It provides examples of calculating net present value (NPV), internal rate of return (IRR), payback period, and modified internal rate of return (MIRR) for projects. It also discusses types of capital budgeting decisions, criteria for evaluation, and traditional vs discounted cash flow methods.
The document discusses various capital budgeting techniques used to evaluate investment projects. It defines capital budgeting as involving the calculation of future cash flows, present value, internal rate of return, payback period and other factors to determine the profitability of projects. Several capital budgeting methods are described, including net present value (NPV), internal rate of return (IRR), profitability index (PI) and payback period. An example compares two investment projects using these techniques, and recommends project B based on it having a shorter payback period, higher accounting rate of return, and greater NPV and PI.
This document discusses various capital budgeting techniques for evaluating investment projects. It defines the payback period method, internal rate of return, net present value, and profitability index. For each method, it provides the calculation, acceptance criteria, and strengths and weaknesses. It then works through an example project at a company called Basket Wonders, calculating the payback period, IRR, NPV, and PI to determine if the project should be accepted based on the company's criteria.
The document discusses various capital budgeting techniques used to evaluate projects and determine which to accept. It covers concepts like initial cash outlay, cash flows, payback period and its limitations. It then introduces net present value as a technique that considers the time value of money and all cash flows by discounting them to calculate the present value of future cash inflows and outflows.
The document discusses key concepts for estimating and analyzing project cash flows including: the elements of a cash flow stream; principles for cash flow estimation such as separation, incremental, post-tax, and consistency; perspectives to view cash flows from; and biases that can impact cash flow forecasting. Accurately estimating cash flows is important but difficult, and requires coordinating across departments while following principles and addressing inherent biases to produce reliable forecasts.
1 Time Value of MoneyMilestone One Time Value of Money (please fi.docxmonicafrancis71118
1 Time Value of MoneyMilestone One: Time Value of Money (please fill in YELLOW cells) Explanations:Interest Rate8% FCF (Free Cash Flows) is the net change in cash generated by the operations of a business during a reporting period, minus cash outlays for working capital, capital expenditures, and dividends during the same period. This is a strong indicator of the ability of an entity to remain in business.
Note: For Milestone One, please use the Free Cash Flows from the United Parcel Service 2017 Annual Report for the years 2015, 2016, and 2017 located on Page 2 of the Report.
FCF - YearsFCF - 2015FCF - 2016FCF - 2017Amounts*6,0826,0073,573Pv*(5,631.48)(5,150.03)(2,836.36)Total Pv*(13,617.88)*In millionsInterest Rate (given) - For purposes of this exercise, use 8% interest rate. Pv=FVN/(1+I)^NPV(I,N,0,FV)With 10% decrease in FCFInterest Rate8%FCF - YearsFCF - 2015FCF - 2016FCF - 2017Amounts*5,4745,4063,216Pv*(5,068.33)(4,635.03)(2,552.73)Total Pv*(12,256.09)*In millions
2 Stock and Bond ValuationMilestone Two: Stock Valuation and Bond Issuance (fill in the YELLOW cells) PART I: STOCK VALUATIONDividend from Financial Statements:Read the Explanations to the right of the calculation cells for specific information on the data.Explanations:Year Cash Div/share ($)Dividend YieldStockholder's Equity (in millions)Stock PriceNote:
1. The dividends declared and paid by UPS for 2015, 2016, and 2017 are found on the second page of the 2017 UPS Annual Report.
2. The dividend yield for 2015, 2016, and 2017 are found on the second page of the 2017 UPS Annual Report.
3. Stockholder's/Shareholder's equity for 2015, 2016, and 2017 are found on the second page of the UPS Annual Report. 20152.923.00%2,49197.333333333320163.122.70%429115.555555555620173.322.60%1,030127.69230769231. Stock Valuation - The new dividend yield if the company increased its dividend per share by 1.75Year Cash Div/Share ($) +1.75Dividend YieldStockholder's Equity (in millions)Stock PriceDividend Yield - annual cash dividend per share of common stock divided by the market price of a share of the common stock. (Dividend yield = Annual Dividend/Current Stock Price)
Note: Current Stock Price is not part of the Financial Statements - calculated using the formula for Dividend Yield20154.674.80%2,49197.333333333320164.874.21%429115.555555555620175.073.97%1,030127.69230769232. The dividend yield if the firm doubled it's outstanding sharesYear Cash Div/Share ($) Dividend YieldStockholder's Equity (in millions) -doubledStock PriceStockholder's Equity = Assets - Liabilities. This represents the ownership of a corporations. Owners are called stockholder because they hold stocks or share of the company. The main goal of every corporate manager is to generate shareholder value. .
Comparing Stability and Sustainability in Agile SystemsRob Healy
Copy of the presentation given at XP2024 based on a research paper.
In this paper we explain wat overwork is and the physical and mental health risks associated with it.
We then explore how overwork relates to system stability and inventory.
Finally there is a call to action for Team Leads / Scrum Masters / Managers to measure and monitor excess work for individual teams.
Employment PracticesRegulation and Multinational CorporationsRoopaTemkar
Employment PracticesRegulation and Multinational Corporations
Strategic decision making within MNCs constrained or determined by the implementation of laws and codes of practice and by pressure from political actors. Managers in MNCs have to make choices that are shaped by gvmt. intervention and the local economy.
Colby Hobson: Residential Construction Leader Building a Solid Reputation Thr...dsnow9802
Colby Hobson stands out as a dynamic leader in the residential construction industry. With a solid reputation built on his exceptional communication and presentation skills, Colby has proven himself to be an excellent team player, fostering a collaborative and efficient work environment.
Specific ServPoints should be tailored for restaurants in all food service segments. Your ServPoints should be the centerpiece of brand delivery training (guest service) and align with your brand position and marketing initiatives, especially in high-labor-cost conditions.
408-784-7371
Foodservice Consulting + Design
Public Speaking Tips to Help You Be A Strong Leader.pdfPinta Partners
In the realm of effective leadership, a multitude of skills come into play, but one stands out as both crucial and challenging: public speaking.
Public speaking transcends mere eloquence; it serves as the medium through which leaders articulate their vision, inspire action, and foster engagement. For leaders, refining public speaking skills is essential, elevating their ability to influence, persuade, and lead with resolute conviction. Here are some key tips to consider: https://joellandau.com/the-public-speaking-tips-to-help-you-be-a-stronger-leader/
Enriching engagement with ethical review processesstrikingabalance
New ethics review processes at the University of Bath. Presented at the 8th World Conference on Research Integrity by Filipa Vance, Head of Research Governance and Compliance at the University of Bath. June 2024, Athens
12 steps to transform your organization into the agile org you deservePierre E. NEIS
During an organizational transformation, the shift is from the previous state to an improved one. In the realm of agility, I emphasize the significance of identifying polarities. This approach helps establish a clear understanding of your objectives. I have outlined 12 incremental actions to delineate your organizational strategy.
Impact of Effective Performance Appraisal Systems on Employee Motivation and ...Dr. Nazrul Islam
Healthy economic development requires properly managing the banking industry of any
country. Along with state-owned banks, private banks play a critical role in the country's economy.
Managers in all types of banks now confront the same challenge: how to get the utmost output from
their employees. Therefore, Performance appraisal appears to be inevitable since it set the
standard for comparing actual performance to established objectives and recommending practical
solutions that help the organization achieve sustainable growth. Therefore, the purpose of this
research is to determine the effect of performance appraisal on employee motivation and retention.
Sethurathnam Ravi: A Legacy in Finance and LeadershipAnjana Josie
Sethurathnam Ravi, also known as S Ravi, is a distinguished Chartered Accountant and former Chairman of the Bombay Stock Exchange (BSE). As the Founder and Managing Partner of Ravi Rajan & Co. LLP, he has made significant contributions to the fields of finance, banking, and corporate governance. His extensive career includes directorships in over 45 major organizations, including LIC, BHEL, and ONGC. With a passion for financial consulting and social issues, S Ravi continues to influence the industry and inspire future leaders.
innovation in nursing practice, education and management.pptx
100006651.ppt
1. Day – 1
Need for studying FM in MBA curriculum
Lessons from the History
Lessons from Warren Buffet
Re-visiting Unit - 1
Its all about purchasing power of money
STAY HOME STAY SAFE
2. Day II – Introduction to Capital Budgeting
Introduction to Capital Budgeting
Importance, accounting
Difference between profit and cash flow
Concept of relevant inflows / outflows
STAY HOME STAY SAFE
3. Day II –Capital Budgeting, its sub-heads
What is Capital Budgeting
Some examples
Its importance
Accounting profit and cash flow
Concept of relevant cash in/outflows
STAY HOME STAY SAFE
4. Day II – Capital Budgeting , details and
calculations of relevant in/outflows
Outflows: Investment minus all rebates and
concessions, allowance etc
Outflows: Expenses plus all indirect benefits
like tax savings because of depreciation etc
STAY HOME STAY SAFE
5. Day III – Calculation of relevant outflows
Cost of machine 10,00,000, expenses on installation
1,00,000, rebate due to establishment of unit in industrially
notified backward area 20% and government support in
view of production of essential goods 10% of project cost.
Here actual outflow would be as under
Outflow: Cost plus installation 11,00,000
Minus: Rebate 2,20,000
Minus: Govt. support 1,10,000
Total: 3,30,000
Net outflow = 7,70,000 (11,00,000 – 3,30,000)
In the next slide, concept of inflows will be illustrated
6. Day III – Illustration of relevant inflows
Inflows means earnings that accrue to a firm. From these gross earning
we need to subtract all expenses, depreciation, taxes etc. The resultant
figures become our Net Profit not net inflow. (Refer to slide 2, bullet III,
audio II). For decision making purpose we need to find out relevant
inflow. This is being illustrated below
Assume that a firm purchased a machine for Rs. One million. Firm has
spent 50,000 Rs. on its installation. Machine has useful life of 5 years,
after which it can be sold for Rs. 1,50,000. The firm estimates that
produce of machine can fetch Rs 5,00,000 annually. Total expenses on
production would be 60%. Straight Line Method of charging Depreciation
is applicable on machine. Taxes are payable @ 25% on net income
Calculation of annual inflows has been illustrated in the next two slides
STAY HOME STAY SAFE
7. Day III – Relevant inflows …….
One needs to workout the following
1. Calculation of yearly Depreciation
2. Calculation of EBIDT
3. Calculation of EAIDBT
4. Calculation of EAIDT
5. Calculation of net inflows
------------
Calculation of Depreciation: There are various methods. (see slide 9 for more).
One in this problem can be calculated as under
Dep: Cost + Installation – Salvage / Life of machine
Dep = 10,00,000+50,000-1,50,000/5
Dep = 1,80,000 per annum
Now look at next slide for calculation from 2 to 5
STAY HOME STAY SAFE
9. Day III, more on Depreciation
• One method has been illustrated in slide 7
• There are several others. One more method based on
which depreciation is charged as per company law is
called Diminishing Balance Method or Written Down
Value Method or Reducing Balance Method. Under
this method, depreciation for first year is calculated at
a given rate (one may be asked to calculate this
percentage) and this figure of depreciation is
subtracted from cost of machine. Resultant figure is
called Written Down Value. In second year Dep is
calculated on WDV and the process continues till the
last year. See illustration on the next slide
10. Day III – Illustration of Depreciation
based on WDV Method
Assumed cost of machine 10,00,000 rate of depreciation
50%, life 5 years, method WDV
Years Cost / Op Bal Dep WDV
31 Dec X1 10,00,000 5,00,000 5,00,000
31 Dec X2 5,00,000 2,50,000 2,50,000
31 Dec X3 2,50,000 1,25,000 1,25,000
31 Dec X4 1,25,000 62,500 62,500
31 Dec X5 62,500 62,500 0
**In last year, total WDV is considered as Depreciation
11. Illustration of Inflows when Dep is charged as per WDV Method
Yrs Gross
Inflows
Op Exp Dep EAIDBT Taxes EAIDT
Net
Inflows
Yrs Gross Op Exp Dep EAIDBT Taxes EAIDT
Net
Inflows
1 5,00,000 3,00,000 500000 -3,00,000 -75,000 -2,25,000 2,75,000
2 5,00,000 3,00,000 250000 -50,000 -12,500 -37,500 2,12,500
3 5,00,000 3,00,000 125000 75,000 18,750 56,250 1,81,250
4 5,00,000 3,00,000 62500 1,37,500 34,375 1,03,125 1,65,625
5 5,00,000 3,00,000 62500 1,37,500 34,375 1,03,125 1,65,625
5 Salvage 1,50,000
Total11,50,000
12. Observe Slide 11 carefully
Post your answers to the following questions to
my no., NOT in Group
1. Why do we charge taxes when income is
negative in first as well as in second year?
2. Why total inflows in slide no. 11 and slide 8
differ when there is no change in gross
income, operating expenses and tax rates
Your explanation should reach me within next
24 hours of from the time of posting audio
message
This completes our discussion for Day III
13. Day - IV
Techniques / methods of financial appraisal
• Traditional methods (Payback Period Method
and Accounting Rate of Return Method)
• Discounted Cash Flow Methods (NPV, IRR and
PI Methods)
• Introduction to assessment of risk in CB
decisions
14. Day – IV - Payback Period Method
With respect to each method, one should know:
Meaning: In what time frame (years) will the
project pay us back our investment
Calculations
Assume relevant out flow is 1,00,000, life 5 years and inflows in 5 years are
20K, 50K, 36K, 44K and 30K
How long wud it take? 2 years and 10 months. In 2 years we have received
70K, we need 30K more. In third year we are getting 36K, so we shall get
30 in 10 months. More illustration on next slide
Stay home, stay safe and help the needy
15. Illustration of Payback Period, one more
example
As of now look at second last row only
Years Cash flows ‘X’ “Y” “Z”
0 (5,00,000) (5,00,000) (5,00,000)
1 1,00,000 2,50,000 1,00,000
2 1,50,000 1,50,000 1,00,000
3 2,50,000 96,000 1,00,000
4 2,00,000 1,04,000 2,00,000
5 1,00,000 2,00,000 4,00,000
PBP 3 Years 3 Years and 14 days 4 Years
ARR 8,00,000/5=1.60K
1.6/5*100=32%
8,00,000/5=1.60K
1.6/5*100=32%
9,00,000/5=1.80K
1.8/5*100=36%
Which one will you recommend? Obviously project “X” because it has
the shortest PBP. Think of a few reasons for preference of “Y” over
“X” and write down in your note book before and test me on my no.
I will go ahead with mine after 5:00 pm today 15
16. Day V, PBP Method, Merits and Demerits
Merits
• Its easy to calculate
• It takes into consideration ‘Risk’ factor
• Its widely used in practice
Demerits
• It ignores Time Value of Money
• It ignores those inflows which accrue after PBP is over
• It ignores total inflows resulting from a project
From sources of your choice find out which method(s) of
Project Appraisals is/are widely used in the business world.
Stay home, stay safe and help the needy
17. Day V, ARR Method, Meaning, Calculation,
Merits and Demerits
Meaning: Average return means sum of returns
received over a time period divided by time
period. If life is five years, then whatever is
sum of inflow in 5 years, find out its average
Calculation: Refer to slide 15, last row in which
calculation of ARR has been illustrated
Merits and Demerits on slide No 18
Stay home, stay safe and help the needy
18. Day V, ARR Method, Merits and Demerits
Merits
• Its also easy to find calculate
• It takes into account total inflows
• It also takes into account inflows that accrue
after the PBP Period
Demerits
• It also ignores Time Value of Money
• It suffer from all those many more limitations
with which the concept of “average” suffers
19. Day VI, NPV Method, Meaning, Calculations, Merits and Demerits
Meaning: This method takes into account PV of
inflows and outflows. Difference between PV of
Inflows and PV of Outflows is called NPV. If its
positive project is accepted, if negative rejected.
When there are many projects, one which has
higher NPV is preferred over others.
Calculations:
Apply the concept you have learnt in Unit – I,
calculate NPV. In next slide steps have been
explained and in next to next slide an illustration
has been provided
20. Steps for calculation of NPV
Arrange inflows and outflows in column 2
(column 1 for years)
Decide discounting factor and write in
column 3 (say PV at 10%)
Multiply Column 2 and column 3
Add column 3
Summation of Column 3, is GPV
Subtract outflows from sum of column 3
The answer is Net Present value
NPV = GPV – Investment
Project which results in Higher NPV is preferred
over others
20
22. Day VI, Merits and Demerits of PV Method
Merits
• It takes into account time value of money
• Its popular in industry
Demerits
• Its relatively difficult to calculate
• What discounting rate is to be taken, is an issue
• It ignores time frame in which we get back our money
• Issues of time, life and size disparity (see details on next
slide)
23. Limitations of NPV (last bullet of previous slide)
1. Size Disparity, 2. Time disparity and 3. Life disparity
(1) Size disparity:
(2) A) - 5000 + 6250, IRR 25%, NPV 681.25 at 10%
B) - 7500 + 9150, IRR 22%, NPV 817.35 at 10%
(2) Time Disparity
(a) (105) + 60 + 45 + 30 +15 = IRR 21% and NPV 17.75 at 10%
(b) (105) +15+30+45+75 = IRR 17% and NPV 19.89 at 10%
(3) Life Disparity
(A)- 20,000 + 24,000 = IRR 20% and NPV 1,653 at 10%
(B)- 20,000 + 0 + 0 + 0 + 0 + 40,200 = IRR 15% and NPV 4,510 at
10%
24. Day VII – IRR; meaning calculations merits demerits and interpretation
IRR – Meaning:
In case of NPV method, we discount the inflows at an
assumed rate (how do we assume, will be explained in Unit
4). The result is either a positive or negative NPV. When
sum of inflows is more than outflows its +ve else –ve. In
case of IRR we find out a rate at which NPV becomes
“zero”. This is the maximum rate which project can yield.
Based on above IRR is defined as a discounting rate at which
NPV = zero. How do we do so? Which rate do we take to
bring NPV to zero? Steps have been explained in the next
slide
25. Day VII – IRR; Steps in calculating IRR
IRR – Meaning:
In case of NPV method, we discount the inflows at an
assumed rate (how do we assume, will be explained in Unit
4). The result is either a positive or negative NPV. When
sum of inflows is more than outflows its +ve else –ve. In
case of IRR we find out a rate at which NPV becomes
“zero”. This is the maximum rate which project can yield.
Based on above IRR is defined as a discounting rate at which
NPV = zero. How do we do so? Which rate do we take to
bring NPV to zero? Steps have been explained in the next
slide
26. Day VII – IRR; Steps in calculating IRR
1. Prepare a table with 6 rows and … columns
2. In column 1 write years, in 2 out/inflows, in 3 any discounting rate (say
10%), in 4th column multiplication of column 2 and 3. Add this column in
row 6. This is PV or GPV. When you subtract outflow from this figure,
your answer could be +ve or –ve. If its positive, write a higher discounting
factor in column 5 (say 15%) and again multiply these factors with inflows
and write them in column 6 and again total this column in row 6. This
time summation may be lesser than outflow. It means NPV is negative. If
it is still positive, increase the rate and repeat these steps till such time
you reach negative NPV.
• Once you have two set of NPVs, one + and the other -, you can interpolate
using the formula given below
IRR = Lower Rate + (Higher Present Value – Investment)/Higher PV minus
Lower PV)* Diff between two rates
27. Illustration of IRR
Years Cash flows PV @10%
GPV at
10%
PV @19% GPV at 19%
0 -500000 1 -500000 1 -500000
1 100000 0.909 90900 0.847458 84745.8
2 150000 0.826 123900 0.718184 107728
3 250000 0.751 187750 0.608631 152158
4 200000 0.683 136600 0.515789 103158
5 100000 0.621 62100 0.437109 43710.9
IRR @
System
17.2867%
GPV
NPV
601250
101250
GPV
NPV
491500
-8500
10%+(601250-5,00,00)/(601250-491500)*9=18.30%
NOTE: In the illustration 10% and 19% has been assumed. For a better and
accurate IRR, difference between rates have to be as least as possible, say 1-
2%. Try this illustration again using lower rate as 17 and higher rate as 19
and text me correct IRR on my no.
27
28. Day VII – Interpretation of IRR, Merits and Demerits
Interpretation: At (IRR) this rate neither wealth will be
maximized not eroded. If the firm earns more return than
IRR, its wealth will be maximized and vice-versa. It’s a
breakeven rate for borrowing money.
Merits
• Its is a reference rate based on which all calculations are
performed
• Its widely used
Demerits
• Tedious calculations
• Reinvestment assumption
29. Day VIII - Comparison of all 4 Methods and Decision
Making
Years Cash
flows
‘X’
PV
Factor
@10%
GPV ‘Y PV
Factor
@10%
GPV ‘Z’ PV
Factor
@10%
GPV
0 -500000 1 -500000 -500000 1 -500000 -500000 1 -500000
1 100000 0.909 90900 250000 0.909 227250 100000 0.909 90900
2 150000 0.826 123900 150000 0.826 123900 100000 0.826 82600
3 250000 0.751 187750 960000 0.751 72096 100000 0.751 75100
4 200000 0.683 136600 104000 0.683 71032 200000 0.683 136600
5 100000 0.621 62100 200000 0.621 124200 400000 0.621 248400
Gross PV 601250 Gross PV 618478 Gross PV 633600
PBP 3 Years 3 Years 14 days 4 Years
ARR 32% 32% 36%
NPV 101250 118750 133600
IRR 17% 20% 18%
Assignment: Your assistant has worked out the above calculations. You
have to recommend COE any one project. If you follow ARR and NPV,
you will select Z, if NPV, you will go for Y and if PBP your choice would
be X. In such a situation what would you do? Post me your
recommendations by next Monday, 5:00 pm
29
30. Day VII, Profitability Index Method (Capital
rationing)
Meaning
Calculation
Merits and demerits
Meaning Capital rationing
Divisible and indivisible projects
30
31. Projects Initial outlay (Rs.
Crore)
NPV (in
Crore)
PI
X 3.00 0.60 1.20
Y 2.00 0.50 1.25
Z 2.50 1.50 1.60
W 6.00 1.80 1.30
Illustration of PI Method
Ranking of the project in descending order of profitability index
Projects
And Rank
Investment outlay
(in Crore)
Profitability
index
NPV
(in
crore)
Z(1) 2.50 1.60 1.50
W(2) 6.00 1.30 1.80
Y(3) 2.00 1.25 0.50
X(4) 3.00 1.20 0.60
Accept project Z in full and w in part (if possible) (Rs.
4,50,000) as it will maximize the NPV. 31
32. Day 9, Unit IV, Financing Decisions - Cost of Capital
• Introduction to Cost of Capital
• Capital Structure (Different forms of financing)
• Rationale and Relevance with shareholders
value
• Types of capital and calculation of cost of
various sources of financing:
– Equity
– Debentures
– Preference shares
– Retained Earnings
33. Day 10 – Cost o Debt
• Meaning of Debt (debentures)
• Types
Convertible and non-convertible
Redeemable and irredeemable
Cumulative and non-cumulative
Participative and non-participative
• Calculation of cost of Debt: Depends on terms of
issues and redemption (if redeemable)
• See next slide for details of terms of issue and
redemption
34. Day 10 - Terms of Issue and redemption
Cost of debt when:
Par means Face Value is 10 and issued at 10, discount means
FV is 10 and issued at less than 10 and premium means FV
is 10 and issued at more than 10
1. Issued at par and redeemed at par
2. Issued at par and redeemed at discount
3. Issued at par and redeemed at premium
4. Issued at discount and redeemed at par
5. Issued at discount and redeemed at discount
6. Issued at discount and redeemed at Premium
7. Issued at Premium and redeemed at par
8. Issued at Premium and redeemed at discount
9. Issued at Premium and redeemed at premium
35. Day 10 – continues
• Steps in calculations
1. Determine inflows
2. Determine Outflows
3. Equate them at an appropriate discounting rate
4. Rate that you have arrived at is Cost of Debt,
expressed as Kd
(Why is it abbreviated as “Kd” in the books of
Finance in stead of Cd? Find out and post on
my number)
• See next slide for illustration
36. Day 10 – continues
Illustration of cost of Debt
Suppose a Debenture of Rs 100 carrying 10%
interest, is issued at par and it will be
redeemed after 3 years at 20% discount
In this case out inflows are Rs. 100 (what
issuing firm receives) and outflows (what the
firm gives out) would be Rs 10 in first year as
interest, Rs 10 again as interest in second
Year 10 and in third year Rs 10 for interest
and Rs 80 as principle. It can be presented in
the following table given in the next slide
37. Year 0 100 @3% factor GPV@3% @4% factor GPV@4%
Year 1 -10 0.9708738 -9.709 0.9615385 -9.61538
Year 2 -10 0.9425959 -9.426 0.9245562 -9.24556
Year 3 -90 0.9151417 -82.36 0.8889964 -80.0097
-101.5 -98.8706
In the above table, data in red fonts represents problem
i.e. inflows and outflows. Data in black shows
calculation of discounting factor at which inflows and
outflows will be equal. This is similar to calculating
@3.57% 100 shall be equal to 100
3.57% will be called Kd
37
38. Day 11 – Cost of Debentures
• After calculating Kd, we also calculate Kdt i.e.
cost of debt after taxes. Because firm gets tax
benefit on interest paid to debenture holders
so to this extent it saves taxes its real cost of
debt becomes what it arrives at after
adjustment of taxes.
Kdt = Kd (1 – tax rate)
If Kd = 10% and tax rate is 30%, Kdt = 7%
39. Day 11 – Cost of Preference Shares
The ways in which preference shares can be issued is
exactly the same that of debentures. Terms of issue and
terms of redemption too are same.
Calculation of Cost of Preference Shares (Kp)
(Why is it that Cost of Preference share is abbreviated as
“Kp” in the books of Finance in stead of Cp? Find out and
post on my number)
Inflows and outflows as a result of issue and redemption
of a preference shares are arranged in a table and we
arrive at a discounting rate at which inflows and outflows
are equal.
This rate is called as Kp
Can the concept of Kpt be also introduced in case
preference shares? Should a firm calculate Kpt also like it
calculates Kdt? Post your answers on my no. Concept
of P&L Appropriation acocunt will help you arriving at 39
40. Day 11 …. Cost of Debentures, Cost of Pref Shares – Exercises
Attempt the following problems
1. A debenture carrying 10% interest issued at 20% premium, will
be redeemed at 20% discount after 5 years. Calculate Kd and
Kdt if tax rate is 35%
2. A debenture carrying 10% interest issued at 20% discount, will
be redeemed at 20% premium after 4 years. Calculate Kd and
Kdt if tax rate is 30%
3. A debenture carrying 10% interest issued at 10% premium, will
be redeemed at 20% premium in four equal installments in 4
years. Calculate Kd and Kdt if tax rate is 50%%
4. A preference share carrying 10% dividend issued at 20%
premium. It will be redeemed at 20% discount after 5 years.
Calculate Kp
5. For question 4 above, will you calculate cost of preference
shares after taxes or Not. Explain your answer