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.
Financial planning refers to the process of estimating a firm's financial requirements and determining pattern of financing. It includes determining the objectives, policies, procedures and programmes to deal with financial activities.
Financial Management — objectives — profit maximization, wealth maximization — finance function — role of finance manager — strategic financial management — economic value added — time value of money.
Introduction to Capital Budgeting Pamela Peterson, Florida S.docxnormanibarber20063
Introduction to Capital Budgeting
Pamela Peterson, Florida State University
O U T L I N E
I. Introduction
II. The investment problem
III. Capital budgeting
IV. Classifying investment projects
V. Cash flow from investments
VI. Operating cash flows
VII. Putting it all together
VIII. Practice problems and questions
I. Introduction
As long as a firm exists, it will invest in assets. Indeed, a firm invests in assets to continue to exist, and
moreover, to grow. By investing to grow, a firm is at the same time investing to maximize the owners'
wealth. To maximize the wealth of a firm's owners, its managers must regularly evaluate investment
opportunities and determine which ones provide a return commensurate with their risk. Let's look at
Firms A, B, and C, each having identical assets and investment opportunities, but that:
o Firm A's management does not take advantage of its investment opportunities and simply pays
all of its earnings to its owners;
o Firm B's management only makes those investments necessary to replace any deteriorating
plant and equipment, paying out any left-over earnings to its owners; and
o Firm C's management invests in all those opportunities that provide a return better than what
the owners could have earned had they had the same amount of invested funds to invest
themselves.
In the case of Firm A, the owners' investment in the firm is not what it could be as long as the firm has
investment opportunities that are better than those available to owners. By not even making investments
to replace deteriorating plant and equipment, Firm A will eventually shrink until it has no more assets.
In the case of Firm B, its management is not taking advantage of all profitable investments --
investments that provide a higher return than the return required by its owners. This means that there
are foregone opportunities and owners' wealth is not maximized.
But in the case of Firm C, management is making all profitable investments, maximizing owners'
wealth. Firm C will continue to grow as long as there are profitable investment opportunities and its
management takes advantage of them. And Firm C represents most large corporations: continually
making investments and growing over time.
II. The investment problem
Capital Investments
Firms continually invest funds in assets and these assets produce income and cash flows that the firm
can then either reinvest in more assets or pay to its owners. These assets represent the firm's capital.
1
Capital is the firm's total assets and is comprised of all tangible and intangible assets. These assets
include physical assets (such as land, buildings, equipment, and machinery), as well as assets that
represent property rights (such as accounts receivable, notes, stocks, and bonds). When we refer to
capital investment, we are referring to the firm's investment in its assets.
The term "capital" also has come to mean the fu.
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.
Financial planning refers to the process of estimating a firm's financial requirements and determining pattern of financing. It includes determining the objectives, policies, procedures and programmes to deal with financial activities.
Financial Management — objectives — profit maximization, wealth maximization — finance function — role of finance manager — strategic financial management — economic value added — time value of money.
Introduction to Capital Budgeting Pamela Peterson, Florida S.docxnormanibarber20063
Introduction to Capital Budgeting
Pamela Peterson, Florida State University
O U T L I N E
I. Introduction
II. The investment problem
III. Capital budgeting
IV. Classifying investment projects
V. Cash flow from investments
VI. Operating cash flows
VII. Putting it all together
VIII. Practice problems and questions
I. Introduction
As long as a firm exists, it will invest in assets. Indeed, a firm invests in assets to continue to exist, and
moreover, to grow. By investing to grow, a firm is at the same time investing to maximize the owners'
wealth. To maximize the wealth of a firm's owners, its managers must regularly evaluate investment
opportunities and determine which ones provide a return commensurate with their risk. Let's look at
Firms A, B, and C, each having identical assets and investment opportunities, but that:
o Firm A's management does not take advantage of its investment opportunities and simply pays
all of its earnings to its owners;
o Firm B's management only makes those investments necessary to replace any deteriorating
plant and equipment, paying out any left-over earnings to its owners; and
o Firm C's management invests in all those opportunities that provide a return better than what
the owners could have earned had they had the same amount of invested funds to invest
themselves.
In the case of Firm A, the owners' investment in the firm is not what it could be as long as the firm has
investment opportunities that are better than those available to owners. By not even making investments
to replace deteriorating plant and equipment, Firm A will eventually shrink until it has no more assets.
In the case of Firm B, its management is not taking advantage of all profitable investments --
investments that provide a higher return than the return required by its owners. This means that there
are foregone opportunities and owners' wealth is not maximized.
But in the case of Firm C, management is making all profitable investments, maximizing owners'
wealth. Firm C will continue to grow as long as there are profitable investment opportunities and its
management takes advantage of them. And Firm C represents most large corporations: continually
making investments and growing over time.
II. The investment problem
Capital Investments
Firms continually invest funds in assets and these assets produce income and cash flows that the firm
can then either reinvest in more assets or pay to its owners. These assets represent the firm's capital.
1
Capital is the firm's total assets and is comprised of all tangible and intangible assets. These assets
include physical assets (such as land, buildings, equipment, and machinery), as well as assets that
represent property rights (such as accounts receivable, notes, stocks, and bonds). When we refer to
capital investment, we are referring to the firm's investment in its assets.
The term "capital" also has come to mean the fu.
meaning of financial management, objectives of financial management. basic concept of financial management role of finance manager key functions of finance
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Presented at The Global HR Summit, 6th June 2024
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Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
Tata Group Dials Taiwan for Its Chipmaking Ambition in Gujarat’s DholeraAvirahi City Dholera
The Tata Group, a titan of Indian industry, is making waves with its advanced talks with Taiwanese chipmakers Powerchip Semiconductor Manufacturing Corporation (PSMC) and UMC Group. The goal? Establishing a cutting-edge semiconductor fabrication unit (fab) in Dholera, Gujarat. This isn’t just any project; it’s a potential game changer for India’s chipmaking aspirations and a boon for investors seeking promising residential projects in dholera sir.
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B2B payments are rapidly changing. Find out the 5 key questions you need to be asking yourself to be sure you are mastering B2B payments today. Learn more at www.BlueSnap.com.
LA HUG - Video Testimonials with Chynna Morgan - June 2024Lital Barkan
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Understanding User Needs and Satisfying ThemAggregage
https://www.productmanagementtoday.com/frs/26903918/understanding-user-needs-and-satisfying-them
We know we want to create products which our customers find to be valuable. Whether we label it as customer-centric or product-led depends on how long we've been doing product management. There are three challenges we face when doing this. The obvious challenge is figuring out what our users need; the non-obvious challenges are in creating a shared understanding of those needs and in sensing if what we're doing is meeting those needs.
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1. First Semester, A.Y. 2018 – 2019
Part II
BA4 - BASIC FINANCE
MMVidanes, MBA
S u b j e c t I n s t r u c to r
2. BASIC FINANCE
the management of assets and money. Its
primary focus is to increase profit and
minimize financial risks.
covers a multitude of diverse occupations,
such as in global finance, budget analysis,
portfolio management and financial
forecasting.
3. When anyone starts a business, capital is
obtained from their own resources, such as
savings; intermediaries such as banks.
In corporations, sources of capital are called shared capital –
those invested by stockholders; and loan capital, those
provided by creditors or lenders.
4. The capital introduced into a business always starts
as cash and then converted into the things the
business uses. When money is invested, areas are:
first, in the things that are not intended to be sold -
fixed assets or sometimes referred capital
expenditure ;
5. and second, in things intended to go into what is to be
sold – revenue expenditure , which as an investment
area is known as working capital. Third, the
investments on outside area of the business. Amounts
invested in one can be taken out of the area and
transferred to another, and vice versa.
6. Goals of Business Finance
Maximizing profit – realizing the highest possible
peso. (The ability for company to achieve a maximum profit with
low operating expenses.)
Maximizing profitability – when a firm decide on
obtaining a higher rate of return on its own
investment. (According to the risk-return tradeoff, invested
money can render higher profits only if the investor is willing to
accept the possibility of losses)
7. Maximizing profit subjects to a cash constraint –
maintaining to maximize profits, while at the same
time maintaining a cash balance that will satisfy both
requirements.
Maximizing net present worth– objective of the firm is
to maximize the current value of the company to its
stockholders.
• Net present worth – is equal to the value NOW of the firm
including values arising in the FUTURE.
Seeking at optimum position along a risk-return
frontier.
8. In finance, the net present value (NPV)
or net present worth (NPW) is a
measurement of profit calculated by
subtracting the present values (PV) of cash
outflows (including initial cost) from
the present values of cash inflows over a
period of time.
NPV – Net Present Value