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This document contains a group presentation for an engineering economics course at the University of Liberia. The group, Capital Investors (Group B), presented on the topic of capital budgeting process. They defined capital budgeting and explained that it involves identifying, analyzing, selecting and implementing investment projects expected to span more than one year. The presentation covered the capital financing and allocation functions, sources of capital funds, models for determining costs of capital like CAPM and WACC, the separation principle, methods for project selection, types of projects, and the capital allocation process.
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• Understand the three major discounted cash flow (DCF) methods of project evaluation and selection – internal rate of return (IRR), net present value (NPV), and accounting rate of return (ARR).
• Explain the calculation, acceptance criterion, and advantages (over the PBP method) for each of the three major DCF methods. l Define, construct, and interpret a graph called an “NPV profile.”
• Understand why ranking project proposals on the basis of the IRR, NPV, and ARR methods “may” lead to conflicts in rankings.
• Describe the situations where ranking projects may be necessary and justify when to use either IRR, NPV, or ARR rankings.
• Understand how “sensitivity analysis” allows us to challenge the single-point input estimates used in traditional capital budgeting analysis.
• Explain the role and process of project monitoring, including “progress reviews” and “postcompletion audits.”
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This document provides an outline for a presentation on capital budgeting. It discusses capital budgeting theory, evaluation methods like net present value (NPV), internal rate of return (IRR), and profitability index (PI). It covers the importance of capital budgeting, types of capital budgeting projects, and the eight step capital budgeting process. Evaluation methods are examined in depth including their strengths and weaknesses. The presentation aims to help the audience understand capital budgeting and how to select projects that maximize shareholder wealth.
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In essence, Confirmation of Payee plays a pivotal role in digital banking, guaranteeing the flawless execution of banking transactions. It stands as a guardian against fraud and misallocation, demonstrating the commitment of financial institutions to safeguard their clients’ assets. The next time you engage in a banking transaction, remember the invaluable role of CoP in ensuring the security of your financial interests.
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Engineering economics powerpoint slide
- 1. University of Liberia College of Engineering Course: GENG 220 (Engineering Economics) Group Presentation Group Name: Capital Investors ( Group B) Presented To: Mr. Samuel Wonasue (Lecturer) Date: July 18, 2017
- 2. Group Members Christian Weah --- Head 74555 Nicholas N. Wilson 58067 Samuel Sellu 57060 Cheay Chooper 66980 K. Chuchu Moore 83384 Fahn Ketter 66405 Matthew Dakemu 77716 Beyan Massaquoi 57928 Martin D. Freeman 54620
- 4. Definition • Is the process of planning expenditures that will generate cash inflows expected to expand over a period of one year. • Is a scientific process of identifying, analyzing, selecting and implementing investment projects with returns that are expected to span over more than one year. Capital budgeting is also referred to as investment appraisal.
- 5. • Capital Financing and Allocation Functions are primary components of Capital Budgeting Process • Both are closely link and are simultaneously managed as part of the capital Budgeting Process
- 6. Capital Financing and Allocation Activities The amount of Funds needed from investors, and lenders as well as funds available from internal sources to support new capital projects are determine in the Capital Financing Functions
- 7. Capital Financing and Allocation Activities • Selection of the engineering projects for implementation occurs in the Allocation Functions
- 8. Capital Financing and Allocation Activities
- 9. Sources of Capital Funds • Debt Capital • Equity Capital
- 10. Capital Asset Pricing Model (CAPM) • It is a model that describes the relationship between expected return and risk of a security. • CAPM Formula and Calculation • Ra=Rfr + Ba ( RM-Rrf)
- 11. Weighted Average cost of Capital • Weighted average cost of capital (WACC) is the average rate of return a company expects to compensate all its different investors. • Here is the basic formula for weighted average cost of capital: • WACC = ((E/V) * Re) + [((D/V) * Rd)*(1-T)] E = Market value of the company's equity D = Market value of the company's debt V = Total Market Value of the company (E + D) Re = Cost of Equity Rd = Cost of Debt T= Tax Rate
- 12. Separation Principle • It is a concept that separate a firm investment decision from its financing decision. • The Separation Principle is used to bring out the project cash flows of a particular project. It is an important part of capital budgeting.
- 13. Project Selection • Selection are based according to • The IRR, • annual worth (AW) method, • future worth (FW) method, • or present worth (PW) method.
- 14. Project Types • Mutually Exclusive • Mutually Independent
- 15. Classifying Investment • Improved facilities—for process improvement, cost savings, or quality improvement • Necessity—for service facilities, emergency replacements, or for the removal or avoidance of a hazard or nuisance
- 16. Classifying Investment • Expanded facilities • Research and development
- 17. Capital Allocation • capital expenditure decision-making process
- 19. Thank You