The document provides information about capital budgeting. It defines capital budgeting and discusses the capital budgeting process, which includes identifying investment opportunities, assembling proposals, decision making, budget preparation, implementation, and performance review. It also covers classification of capital projects, features of capital budgeting, estimating cash flows, decision criteria like payback period, accounting rate of return, net present value, profitability index, and internal rate of return.
Notes on Valuation of Goodwill and Shares For BBA/B.com studentsYamini Kahaliya
the document contains Notes on Valuation of Goodwill and Shares
{Goodwill may be described as the aggregate of those intangible attributes of a business which contributes to its superior earning capacity over a normal return on investment}
{The share capital is the most important requirement of a business. It is divided into a ‘number of indivisible units of a fixed amount. These units are known as ‘shares’. }
Notes on Valuation of Goodwill and Shares For BBA/B.com studentsYamini Kahaliya
the document contains Notes on Valuation of Goodwill and Shares
{Goodwill may be described as the aggregate of those intangible attributes of a business which contributes to its superior earning capacity over a normal return on investment}
{The share capital is the most important requirement of a business. It is divided into a ‘number of indivisible units of a fixed amount. These units are known as ‘shares’. }
Valuation of shares, nature of shares, factors affecting shares, need for valuation of shares, method of valuation of shares, net asset based method, yield based method, fair value method
Valuation of shares, nature of shares, factors affecting shares, need for valuation of shares, method of valuation of shares, net asset based method, yield based method, fair value method
The Cash Flow Statement translates earnings in the Income Statement into cash inflows. Explained in detail above as a part of the topic “Financial accounting”, is brought to you by Welingkar’s Distance Learning Division.
For more such innovative content on management studies, join WeSchool PGDM-DLP Program: http://bit.ly/SlideshareFaccounting
Join us on Facebook: http://www.facebook.com/welearnindia
Follow us on Twitter: https://twitter.com/WeLearnIndia
Read our latest blog at: http://welearnindia.wordpress.com
Subscribe to our Slideshare Channel: http://www.slideshare.net/welingkarDLP
Projects may look attractive for two reasons:1) There are some errors in forecast 2)The company genuinely expects to earn excess profits.
So increase odds in your favor by moving in areas of competitive advantages.
Look at economic rents and where even advantage is absent or entry of competitors will push prices down or costs up, don’t enter .
When you have the market value of an asset use it..rather then over analysis…gold, real estate..airplanes etc…
PV calculations may vary and subject to error …that’s life!!!!!
Capital budgeting decisions are much vital than the decisions on management of working capital as these decisions requires careful analysis of the expected costs and benefits to be derived from each capital expenditure on acquisition of land, building, equipments and for permanent additions to working capital associated with the plant expansion.
The level of investments that maximizes the present value of the firm is simultaneously determined by the interaction of supply and demand forces under conditions of uncertainty
LUXURY TRAVEL THE ULTIMATE TOKYO EXPERIENCE FROM SINGAPORE.pdfDiper Tour
Get off on the most luxurious Tokyo itinerary from Singapore. Experience Tokyo’s sophisticated modernism and rich tradition with first-class travel, sumptuous lodging, fine food, and special tours. Savor the finest that this energetic city has to offer for an experience that will never be forgotten.
4 DAYS MASAI MARA WILDEBEEST MIGRATION SAFARI TOUR PACKAGE KENYABush Troop Safari
Join our 4-day Masai Mara Wildebeest Migration Safari in Kenya. Witness the incredible wildebeest migration, enjoy exciting game drives, and stay in comfortable lodges. Get up close and personal with one of nature's most amazing exhibits! Book Your Safari Today at - https://bushtroop-safaris.com/
Our Ooty honeymoon package from Chennai is a perfect escape for newlywed couples to celebrate their love and start their new life together. Our package offers a range of itineraries to cater to the diverse preferences of couples. From adventure activities to relaxing spa sessions, these packages are designed to provide the perfect balance between adventure and relaxation.
Antarctica- Icy wilderness of extremes and wondertahreemzahra82
In this presentation, we delve into the captivating realm of Antarctica, Earth's southernmost continent. This icy wilderness stands as a testament to extremes, with record-breaking cold temperatures and vast expanses of pristine ice. Antarctica's landscape is dominated by towering glaciers, colossal icebergs, and expansive ice shelves. Yet, amidst this frozen expanse, a rich tapestry of unique wildlife thrives, including penguins, seals, and seabirds, all finely attuned to survive in this harsh environment. Beyond its natural wonders, Antarctica also serves as a vital hub for scientific exploration, providing invaluable insights into climate change and the Earth's history
BTW UK Visa Application Process, Uk Visa complete guide, Uk Visa fees, requirements and application process. Know all about uk visa and best way to apply for the uk visa. Get to know about the requirements that allows you for the faster visa appliaction. BTW UK Visa Application Process, Uk Visa complete guide, Uk Visa fees, requirements and application process. Know all about uk visa and best way to apply for the uk visa. Get to know about the requirements that allows you for the faster visa appliaction. BTW UK Visa Application Process, Uk Visa complete guide, Uk Visa fees, requirements and application process. Know all about uk visa and best way to apply for the uk visa. Get to know about the requirements that allows you for the faster visa appliaction. BTW UK Visa Application Process, Uk Visa complete guide, Uk Visa fees, requirements and application process. Know all about uk visa and best way to apply for the uk visa. Get to know about the requirements that allows you for the faster visa appliaction. BTW UK Visa Application Process, Uk Visa complete guide, Uk Visa fees, requirements and application process. Know all about uk visa and best way to apply for the uk visa. Get to know about the requirements that allows you for the faster visa appliaction. BTW UK Visa Application Process, Uk Visa complete guide, Uk Visa fees, requirements and application process. Know all about uk visa and best way to apply for the uk visa. Get to know about the requirements that allows you for the faster visa appliaction. BTW UK Visa Application Process, Uk Visa complete guide, Uk Visa fees, requirements and application process. Know all about uk visa and best way to apply for the uk visa. Get to know about the requirements that allows you for the faster visa appliaction. BTW UK Visa Application Process, Uk Visa complete guide, Uk Visa fees, requirements and application process. Know all about uk visa and best way to apply for the uk visa. Get to know about the requirements that allows you for the faster visa appliaction. Get information in this PDF and simplyfy your visa process.
The Power of a Glamping Go-To-Market Accelerator Plan.pptxRezStream
Unlock the secrets to success with our comprehensive 8-Step Glamping Accelerator Go-To-Market Plan! Watch our FREE webinar, where you'll receive expert guidance and invaluable insights on every aspect of launching and growing your glamping business.
During the coldest months, Italy transforms into a winter wonderland, providing visitors with a very unique experience. From the Settimana Bianca ski event to the lively Carnevale celebrations, Italy's winter festivities provide something for everyone. Enjoy hot cocoa, eat hearty comfort foods, and buy during winter deals. Explore the country's rich cultural past by participating in Settimana Bianca, and Carnevale, sipping hot chocolate, shopping during winter deals, and indulging in winter comfort foods. Visit our website https://timeforsicily.com/ for more information.
How To Talk To a Live Person at American Airlinesflyn goo
This page by FlynGoo can become your ultimate guide to connecting with a live person at American Airlines. Have you ever felt lost in the automated maze of customer service menus? FlynGoo is here to rescue you from endless phone trees and automated responses. With just a click or a call to a specific number, we ensure you get the human touch you deserve. No more frustration, no more waiting on hold - we simplify the process, making your travel experience smoother and more enjoyable.
Hidden Gems of Europe - DISCOVERING THE CONTINENT'S BEST-KEPT SECRETSKamil Uğraş TÜRKOĞLU
Europe, continent rich in history, culture, and natural beauty, is often synonymous with famous cities like Paris, Rome, and London. These iconic destinations attract millions of tourists every year, captivating them with their renowned landmarks, vibrant culture, and bustling urban life. However, beyond these well-trodden paths lie countless hidden gems waiting to be discovered. These lesser-known destinations offer unique experiences, authentic encounters, and breathtaking landscapes that often surpass the allure of their famous counterparts.
In "Hidden Gems of Europe," we embark on a journey to uncover these secret spots, exploring the heart and soul of Europe through its quaint villages, charming towns, and secluded natural wonders. This book aims to inspire travelers to look beyond the obvious and venture into the lesser-explored corners of the continent, where true adventure and discovery await.
Its running cost is among the diverse vital aspects you must consider before buying an electric scooter. Calculate the cost of getting e-scooter charge for your regular usage to calculate its economic efficiency, similar to people who investigate the mileage of petrol or diesel-driven scooters.
3. CAPITAL BUDGETING Capital budgeting is a decision situation where large funds are committed (invested) in the initial stages of the project and the returns are expected over a long period of time. These decisions are related to allocation of investible funds to different long-term assets. Capital budgeting is a continuous process and it is carried out by different functional areas of management such as production, marketing, engineering, financial management etc.
4. Classification of capital budgeting project Capital expenditure projects can be classified in Replacement, Modernization, Expansion, Diversification, New project, Cost reduction, Statutory projects, etc. statutory projects are like a waste recycling plant in case of chemical plant.
9. Capital Budgeting Decision Process Capital Budgeting is the process of evaluating and selecting long-term investment projects that achieve the goal of owner wealth maximization. Capital budgeting decisions are treated separately from the related financing decisions.
10. Basic Steps of Capital Budgeting 1. Estimate the cash flows 2. Assess the riskiness of the cash flows. 3. Determine the appropriate discount rate. 4. Find the PV of the expected cash flows. 5. Accept the project if PV of inflows > costs. IRR > Hurdle Rate and/or payback < policy
11. CAPITAL BUDGETING DECISION : ACCEPT-REJECT DECISION MUTUALLY EXCLUSIVE PROJCTS CAPITAL RATIONING REPLACEMENT DECISION
12. CAPITAL BUDGETING DECISION INVOLVES THREE STEPS: Estimation of costs and benefits of a proposal or of each alternative. Estimation of the required rate of return, i.e., the cost of capital Selection and applying the decision criterion.
13. Capital Rationing Situation Select the projects which have payback periods lower than or equivalent to the stipulated payback period. Arrange these selected projects in increasing order of their respective payback periods. Select those projects from the top of the list till the capital Budget is exhausted.
14. Mutually Exclusive Projects In the case of two mutually exclusive projects, the one with a lower payback period is accepted, when the respective payback periods are less than or equivalent to the stipulated payback period.
15. ESTIMATION OF CASH FLOWS The costs and benefits for a capital budgeting decision situation are measured in terms of cash flows. An important point is that all cash flows are considered on after tax basis. The rule is that all financial decisions are subservient to tax laws. The cash flow from the project are compared with the cost of acquiring the project.
24. TAX Shield Tax shield is like a capital saving. Expenses which are deductible before tax lower the PBT and therefore lower tax payable. A tax shield is the reduction in income tax that results from taking an allowable deduction from taxable income. For e.g, because interest on debt is a tax deductible expenses , taking on debt creates a tax shiled. Since tax shield is a way to save cash flows, it increases the value of business, and it is an important aspect of financial management.
25. Sunk Costs, Opportunity Costs Sunk Costs: outlays that have already been made and therefore have no effect on the cash flows relevant to a current decision. Opportunity Costs: cash flows that could be realized from the best alternative use of an owned asset.
29. Operational and Financial Cash Flows Operational items that affect EBIT should be considered relevant, while financial costs like interest, lease payments, and dividends are ignored. Financial costs are considered in the discounting process of calculating NPV.
30. Calculating Cash Flows Only incremental amounts are considered; compare the new asset with the old. Ignore sunk costs but include opportunity costs. Only include operational items; ignore financial costs. Cash inflows must be after-tax; the firm only receives benefits after paying appropriate taxes.
31. Determining Initial Investment The Initial Investment is the relevant cash outflows incurred if a capital budgeting project is implemented. This often includes installation costs, and incremental costs of getting the asset to the point of generating cash inflows, less proceeds from the sale of old assets when replacement is taking place.
32. Change in Net Working Capital The difference between the change in current assets and current liabilities associated with an investment project. Changes in new working capital are not taxable because they merely involve the net buildup or reduction of current accounts.
36. Calculation of different cash flows may be summarized as follows: INITIAL CASH OUTFLOW: Cost of new plant + Installation expenses + Other Capital expenditure + Additional working capital – Tax benefit on account of capital loss on sale of old plant (if any) – Salvage value of old plant + Tax liability on account of capital gain on sale of old plant (if any).
37. SUBSEQUENT ANNUAL INFLOWS: Profit after tax + Depreciation + Financial charge – Repairs (if any) – Capital Expenditure (if any). TERMINAL CASH FLOW: Annual cash inflow + Working capital released + Scrap value of the plant (if any).
38. 2. DECISION CRITERIA TECHNIQUES OF EVALUATION Traditional or Time-adjusted or Non-discounting Discounted cash flows 1. Payback period 1. Net Present Value 2. Accounting Rate of 2. Profitability Index Return 3. Internal Rate of Return
39. TRADITIONAL OR NON-DISCOUNTING TECHNIQUES I . PAYBACK PERIOD: # The payback period is defined as “the number of years required for the proposal’s cumulative cash inflows to be equal to its cash outflows.” # The payback period is the length of time required to recover the initial cost of the project. # The payback period may be suitable if the firm has limited funds available and has no ability or willingness to raise additional funds.
40. II . ACCOUNTING RATE OF RETURN (OR) AVERAGE RATE OF RETURN (ARR) # The ARR may be defined as “the annualized net income earned on the average funds invested in a project.” # The annual returns of a project are expressed as a percentage of the net investment in the project. COMPUTATION OF ARR: Average Annual profit (after tax) ARR = x 100 Average Investment in the Project
41. DISCOUNTED CASH FLOWS OR TIME ADJUSTED TECHNIQUES These are based upon the fact that the cash flows occurring at different point of time are not having same economic worth. I.NET PRESENT VALUE (NPV) METHOD: The NPV of an investment proposal may be defined as the sum of the present values of all the cash inflows less the sum of present values of all the cash outflows associated with the proposal. The decision rule is “ Accept the proposal if its NPV is positive and reject the proposal if the NPV is negative”.
42. Net Present Value Method Initial valuation should consider the present value of the asset’s incremental after-tax cash inflows. Adding consideration for initial costs (C0), we have the Net Present Value of the project: NPV= PV. OF INFLOWS – PV OFOUTFLOWS
43. II. PROFITABILITY INDEX METHOD: This technique is a variant of the NPV technique and is also known as BENEFIT - COST RATIO or PRESENT VALUE INDEX. Total present value of cash inflows PI = Total present value of cash outflows. Accept the project if its PI is more than 1 and reject the proposal if the PI is less than 1.
44.
45. The IRR is also known as Marginal Rate of Return or Time Adjusted Rate of Return.
46. The time-schedule of occurrence of future cash flows is known but the rate of discount is not.
47. The discount rate calculated will equate the present value of cash inflows with the present value of cash outflows.IRR= LOWER RATE+ NPV AT LOWER RATE x HIGHER RATE –LOWER RATE NPV AT LOWER RATE – NPV AT HIGHER RATE
48. Evaluating Projects Capital budgeting techniques that integrate time value procedures, risk and return considerations, and valuation concepts to select capital expenditures that are consistent with the firm’s goal of maximizing owner’s wealth.
49. Issues with Calculating Cash Inflows Each Year Assets with very long lives requires different calculations for each year’s CCA tax shield, since CCA is calculated on a declining balance of UCC. A related problem is that the declining balance of UCC never reaches zero, so even at the end of a long lived project, the assets may still have a positive UCC value.
50. Capital Expenditure Motives Capital Expenditures are an outlay of funds that are expected to produce benefits over a period of time greater than one year. Operating Expenditures are an outlay of funds resulting in benefits received within one year. The basic motives for capital expenditures are to expand, replace, or renew fixed assets over a long period.
51.
52. Discounted cash flow techniques are more popular now.
53. High growth firms use IRR more frequently whereas Payback period is more widely used by small firms.
54. PI technique is used more by public sector units than by private sector units.Capital budgeting decisions are of paramount importance as they affect the profitability of a firm, and are the major determinants of its efficiency and competing power.