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The document discusses various capital budgeting techniques used to evaluate long-term investment projects. It describes approaches like net present value (NPV), internal rate of return (IRR), profitability index, and payback period. It also discusses risks involved like stand-alone risk, corporate risk, and market risk. Scenario analysis and simulation analysis are presented as methods to incorporate risk analysis into the capital budgeting process.

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Classification of risk

This document classifies and defines different types of risk:
1. Systematic risk includes market risk, interest rate risk, and purchasing power risk which stem from overall market forces outside a company's control.
2. Unsystematic risk is specific to an individual company and can result from business risks like poor management or technological changes, or financial risks from using debt.
3. Risk is associated with the variability and uncertainty of investment returns. Expected return considers the probability weighted average returns from all possible outcomes, while risk is measured by the variance or standard deviation of returns. Both risk and expected return must be examined for investment decisions.

Chapter 2 - Risk Management - 2nd Semester - M.Com - Bangalore University

MODULE 2:
Introduction to Risk Management, Types of Risk, Evolution of Risks, Steps in risk management, RBI guidelines.

Investment decision

INVESTMENT DECISION
TYPES OF INVESTMENT
CAPITAL BUDGETING
CASH FLOWS
REALTED TO ACCOUNTING AND FINANCE

Cash flow analysis

The document discusses key aspects of a statement of cash flows including its four main parts (cash, operating activities, investing activities, financing activities), methods for preparing it (direct vs indirect), uses both internally and externally, limitations, and provides an example cash flow statement for 5 companies. It explains how the statement of cash flows reconciles accrual-based accounting to cash-based transactions and flows.

Capital Budgeting

Capital budgeting refers to the process of evaluating investment projects and determining whether they should be accepted or rejected. There are traditional and discounted cash flow methods for evaluating projects. Traditional methods include payback period and accounting rate of return, which do not consider the time value of money. Discounted cash flow methods like net present value (NPV) and internal rate of return (IRR) discount future cash flows to determine if a project will provide sufficient returns. The capital budgeting process involves project generation, evaluation using techniques like NPV or IRR, and selection of projects that meet acceptance criteria.

Risk and Return

This document discusses various concepts related to investment returns and risk. It begins by defining return as income received plus capital gains. It then discusses the components of return including yield and capital gains. It provides a formula to calculate total return. The document then discusses various types of risk including market risk, liquidity risk, and foreign exchange risk. It also covers sensitivity analysis using range and standard deviation. Finally, it discusses portfolio returns and risks, and introduces the Capital Asset Pricing Model to relate expected returns to market risk.

Capital budgeting Techniques

This document discusses various capital budgeting techniques, including traditional non-discounting methods like payback period and accounting rate of return, as well as modern discounting techniques like net present value, internal rate of return, and profitability index. It provides formulas and steps for calculating each technique, discusses their advantages and disadvantages, and provides decision criteria for evaluating projects.

Bond valuation

The document discusses various bond valuation concepts like coupon rate, current yield, spot interest rate, yield to maturity, yield to call, and realized yield. It provides examples to calculate these measures and explains how bond prices are determined based on factors like interest rates, time to maturity, and cash flows. Bond duration is introduced as a measure of interest rate risk exposure, and bond risks from default and changes in interest rates are explained.

Classification of risk

This document classifies and defines different types of risk:
1. Systematic risk includes market risk, interest rate risk, and purchasing power risk which stem from overall market forces outside a company's control.
2. Unsystematic risk is specific to an individual company and can result from business risks like poor management or technological changes, or financial risks from using debt.
3. Risk is associated with the variability and uncertainty of investment returns. Expected return considers the probability weighted average returns from all possible outcomes, while risk is measured by the variance or standard deviation of returns. Both risk and expected return must be examined for investment decisions.

Chapter 2 - Risk Management - 2nd Semester - M.Com - Bangalore University

MODULE 2:
Introduction to Risk Management, Types of Risk, Evolution of Risks, Steps in risk management, RBI guidelines.

Investment decision

INVESTMENT DECISION
TYPES OF INVESTMENT
CAPITAL BUDGETING
CASH FLOWS
REALTED TO ACCOUNTING AND FINANCE

Cash flow analysis

The document discusses key aspects of a statement of cash flows including its four main parts (cash, operating activities, investing activities, financing activities), methods for preparing it (direct vs indirect), uses both internally and externally, limitations, and provides an example cash flow statement for 5 companies. It explains how the statement of cash flows reconciles accrual-based accounting to cash-based transactions and flows.

Capital Budgeting

Capital budgeting refers to the process of evaluating investment projects and determining whether they should be accepted or rejected. There are traditional and discounted cash flow methods for evaluating projects. Traditional methods include payback period and accounting rate of return, which do not consider the time value of money. Discounted cash flow methods like net present value (NPV) and internal rate of return (IRR) discount future cash flows to determine if a project will provide sufficient returns. The capital budgeting process involves project generation, evaluation using techniques like NPV or IRR, and selection of projects that meet acceptance criteria.

Risk and Return

This document discusses various concepts related to investment returns and risk. It begins by defining return as income received plus capital gains. It then discusses the components of return including yield and capital gains. It provides a formula to calculate total return. The document then discusses various types of risk including market risk, liquidity risk, and foreign exchange risk. It also covers sensitivity analysis using range and standard deviation. Finally, it discusses portfolio returns and risks, and introduces the Capital Asset Pricing Model to relate expected returns to market risk.

Capital budgeting Techniques

This document discusses various capital budgeting techniques, including traditional non-discounting methods like payback period and accounting rate of return, as well as modern discounting techniques like net present value, internal rate of return, and profitability index. It provides formulas and steps for calculating each technique, discusses their advantages and disadvantages, and provides decision criteria for evaluating projects.

Bond valuation

The document discusses various bond valuation concepts like coupon rate, current yield, spot interest rate, yield to maturity, yield to call, and realized yield. It provides examples to calculate these measures and explains how bond prices are determined based on factors like interest rates, time to maturity, and cash flows. Bond duration is introduced as a measure of interest rate risk exposure, and bond risks from default and changes in interest rates are explained.

Functions of finance

The document discusses various aspects of financial markets in India. It begins by defining what comprises the Indian financial market, including the primary market, FDI, alternative investments, banking/insurance/pensions, and asset management. It then provides more details on some of the key components of the Indian financial market, including the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Over-the-Counter Exchange of India (OTCEI), and the Securities and Exchange Board of India (SEBI) which regulates the securities market. The document concludes by discussing the integration of financial markets, including the benefits of integration such as more efficient price signals, reduced arbitrage opportunities, and increased efficacy of monetary policy.

Financial Forecasting & Planning

This document discusses various techniques for financial forecasting and projections. It provides an overview of preparing pro forma income statements and balance sheets using percentage of sales and budgeted expense methods. An example pro forma income statement and assumptions are presented. Key points covered are sales forecasting techniques, calculating external funding requirements for growth, and preparing other supporting financial projections like cash budgets and operating budgets.

Investment Management Risk and Return

This document discusses the relationship between risk and return in investments. It defines total risk as the sum of systematic and unsystematic risk. Systematic risk stems from external market factors that affect all investments, while unsystematic risk is specific to a particular company. The expected return and risk of individual stocks varies, with higher risk investments generally offering higher returns. A portfolio combines multiple assets to reduce overall risk through diversification. The portfolio risk depends on the covariance and correlation between the individual assets' returns. Diversifying across assets with low correlation is an effective way to reduce risk.

Stock Valuation

The document discusses various methods for valuing common stock, including calculating the present value of future dividends using the dividend discount model. It outlines three cases for the pattern of future dividends: zero growth, constant growth, and non-constant growth. Key valuation formulas and an example are provided. Additional stock features and components of the required return such as the dividend yield and capital gains yield are also examined.

Capital Budgeting Decisions

1) Capital budgeting is the process of planning for capital expenditures that are expected to generate returns over multiple years. It involves evaluating potential long-term investment projects and determining which ones to undertake.
2) The document discusses various capital budgeting techniques for evaluating projects, including payback period, accounting rate of return, net present value, and internal rate of return. It also outlines the typical capital budgeting process of identifying, screening, evaluating, approving, implementing, and reviewing projects.
3) Key factors in capital budgeting include properly accounting for the time value of money, risk analysis, and ensuring projects will maximize long-term profitability for the company. Both traditional and modern discounted cash flow methods have advantages and

Investment decisions / capital Budgeting

The document discusses capital budgeting and capital expenditure decisions made by firms for long-term investments. These decisions involve massive investments that exchange current funds for future benefits over many years, bringing uncertainty and risks. Key factors in capital budgeting include growth, risk, funding, and irreversibility. The goals of capital budgeting are to maximize shareholder wealth and allow for ranking projects based on their true profitability using techniques like net present value, internal rate of return, profitability index, payback period, and accounting rate of return.

Cost of capital

This document discusses the cost of capital. It defines cost of capital as the minimum rate of return that a firm must earn on its investments to maintain its value. Cost of capital has several components, including the return at zero risk, and premiums for business risk and financial risk. The document also discusses the different types of capital like debt, equity and retained earnings, and how to compute the cost of each. It explains weighted average cost of capital is calculated by weighting the costs of different sources of capital by their proportions.

Financial risk management ppt @ mba finance

This document provides an overview of financial risk management. It discusses key concepts such as risk, risk stratification, risk management approaches, interest rate risk, and term structure theories. The key points are:
1. Financial risk management involves monitoring risks and managing their impact on a firm. It uses modern finance theories to balance risk taken with expected reward.
2. Risk can be stratified into known probabilities, known parameters but uncertain quantification, unknown causation/interactions, and undiscovered or unmanifested risks.
3. A risk management approach involves identifying, measuring, and adjusting risks through behavior changes, insurance, hedging, and other means. Managing core business risks internally and hedging economic risks

Accounting rate of return

The document defines accounting rate of return (ARR) as the ratio of estimated accounting profit to average investment. ARR is calculated by taking the average accounting profit and dividing it by the average investment. Projects should be accepted if their ARR is greater than or equal to the required accounting rate of return, and between mutually exclusive projects the one with the highest ARR should be accepted. An example calculation is shown to illustrate determining ARR for a project with initial investment, annual cash inflows, depreciation, and scrap value.

Capital budgeting

This document provides an overview of capital budgeting and investment decision making. It defines key terms like capital budgeting, investment decisions, cash flows, net present value, and discounted cash flow techniques. It also summarizes several approaches to evaluating investment projects, including payback period, accounting rate of return, net present value, and internal rate of return. The document emphasizes the importance of considering the time value of money when analyzing projects with cash flows occurring over multiple periods.

Types of risk

This document discusses different types of risk that businesses may face. It defines risk as uncertainty concerning potential losses and distinguishes it from uncertainty where outcomes are completely unknown. The document then examines several specific types of risk in more detail, including credit risk, asset liability gap risk, interest rate risk, market risk, currency risk, and due diligence risk. It provides examples to illustrate each type of risk and how businesses can potentially experience losses due to these risks. Finally, the document concludes that risk control aims to identify, assess, and prepare for potential hazards and disruptions through approaches like avoidance, loss prevention, and diversification.

The capital budgeting process

This document discusses key concepts related to capital budgeting and risk analysis. It begins with definitions of capital budgeting as the process of identifying, evaluating, planning, and financing capital investment projects. It describes the main features of capital budgeting projects as having large anticipated benefits, high risk, and a long time period between initial outlay and return.
The document then covers various capital budgeting techniques for evaluating projects, including payback period, net present value (NPV), and internal rate of return (IRR). It provides examples of calculating each measure and the criteria for accepting projects. Finally, it discusses risk in capital budgeting, defining it as uncertainty in cash flow forecasts, and methods for measuring risk, such as

Capital budgeting

,
capital budgeting
,
concept of capital budgeting
,
the capital budgeting process
,
significance of capital budgeting
,
classification of investment project proposals
,
techniques of capital budgeting
,
types of project

Risk, return, and portfolio theory

The document discusses risk and return in investments. It defines key concepts such as realized and expected return, ex-ante and ex-post returns, sources and measurements of risk including standard deviation and coefficient of variation. It also discusses the risk-return tradeoff and how higher risk investments require higher potential returns to compensate for additional risk.

Receivables management

- The document discusses receivables management. Receivables refer to amounts owed by customers from credit sales.
- The objectives of receivables management include optimizing investment in receivables, balancing credit sales and investment, maximizing firm value, and achieving a trade-off between risk and return.
- Costs associated with receivables include opportunity costs, collection costs, delinquency costs, and default costs. Firms must choose an optimal credit policy that balances liberal policies which increase sales versus stringent policies which reduce risks.

Foreign exchange exposure PPT

Foreign exchange exposure is the risk associated with activities involving currencies other than a firm's home currency. It is the risk that foreign currencies may fluctuate in a way that financially harms the firm. There are three main types of foreign exchange exposure: transaction, economic, and translation. Firms can assess and manage their exposures through hedging strategies like financial contracts and operational techniques. Whether to hedge depends on factors like a firm's currency forecasts and focus on its core business versus currency speculation.

Payback period by harikrishnanan

Payback period (PP) is the number of years it takes for a company to recover its original investment in a project, when net cash flow equals zero. In the calculation of the payback period, the cash flows of the project must first be estimated. The payback period is then a simple calculation.

Cash and marketable securities management

Cash management and marketable securities are key areas of working capital management. Cash is held for transactional, precautionary and speculative motives to meet routine payments and unexpected needs. The objectives of cash management are to meet payment schedules while minimizing idle cash balances. Factors determining cash needs include synchronizing cash inflows and outflows, costs of shortfalls, and excess cash balances. Marketable securities alternatives that provide liquidity include treasury bills, commercial paper, certificates of deposit, bankers' acceptances, money market funds and intercorporate deposits.

financial system

The document provides an introduction to financial systems, including definitions, key components, and functions. It discusses that a financial system consists of institutions, markets, instruments, and services that facilitate the transfer of funds. The main components are financial institutions like banks, markets where assets are traded, various financial services, and instruments/assets like stocks, bonds, and mutual funds. Financial systems play an important role in allocating resources and facilitating economic growth.

Functions of financial manager

The functions of a financial manager include making investment, financing, and dividend decisions. A financial manager is responsible for the financial health of an organization by producing financial reports, directing investment activities, and developing long-term financial strategies and goals. Some of the primary roles of a financial manager are performing financial analysis and planning, deciding how to invest funds, determining the best sources of financing, and deciding how to distribute profits between shareholders and retained earnings. In addition to these core duties, a financial manager also forecasts future profits, allocates resources and funds, and represents the interests of shareholders.

Discounted measures

The document discusses several discounted measures used to evaluate project worth: net present value (NPV), net benefit investment ratio (NBIR), benefit-cost ratio (BCR), and internal rate of return (IRR). It provides the formulas and decision rules for each measure. It notes that while NPV, NBIR, BCR, and IRR are commonly used, IRR can be unreliable in situations with non-conventional cash flows or mutually exclusive projects, and that NPV should be used to resolve conflicts between decision rules.

Npv n other invest cri lec 4

Basic terms review
Capital budgeting introduction
Capital budgeting technique
Sensitivity analysis
Scenario analysis
present value
potential difficulties and strength of capital budgeting

Functions of finance

The document discusses various aspects of financial markets in India. It begins by defining what comprises the Indian financial market, including the primary market, FDI, alternative investments, banking/insurance/pensions, and asset management. It then provides more details on some of the key components of the Indian financial market, including the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Over-the-Counter Exchange of India (OTCEI), and the Securities and Exchange Board of India (SEBI) which regulates the securities market. The document concludes by discussing the integration of financial markets, including the benefits of integration such as more efficient price signals, reduced arbitrage opportunities, and increased efficacy of monetary policy.

Financial Forecasting & Planning

This document discusses various techniques for financial forecasting and projections. It provides an overview of preparing pro forma income statements and balance sheets using percentage of sales and budgeted expense methods. An example pro forma income statement and assumptions are presented. Key points covered are sales forecasting techniques, calculating external funding requirements for growth, and preparing other supporting financial projections like cash budgets and operating budgets.

Investment Management Risk and Return

This document discusses the relationship between risk and return in investments. It defines total risk as the sum of systematic and unsystematic risk. Systematic risk stems from external market factors that affect all investments, while unsystematic risk is specific to a particular company. The expected return and risk of individual stocks varies, with higher risk investments generally offering higher returns. A portfolio combines multiple assets to reduce overall risk through diversification. The portfolio risk depends on the covariance and correlation between the individual assets' returns. Diversifying across assets with low correlation is an effective way to reduce risk.

Stock Valuation

The document discusses various methods for valuing common stock, including calculating the present value of future dividends using the dividend discount model. It outlines three cases for the pattern of future dividends: zero growth, constant growth, and non-constant growth. Key valuation formulas and an example are provided. Additional stock features and components of the required return such as the dividend yield and capital gains yield are also examined.

Capital Budgeting Decisions

1) Capital budgeting is the process of planning for capital expenditures that are expected to generate returns over multiple years. It involves evaluating potential long-term investment projects and determining which ones to undertake.
2) The document discusses various capital budgeting techniques for evaluating projects, including payback period, accounting rate of return, net present value, and internal rate of return. It also outlines the typical capital budgeting process of identifying, screening, evaluating, approving, implementing, and reviewing projects.
3) Key factors in capital budgeting include properly accounting for the time value of money, risk analysis, and ensuring projects will maximize long-term profitability for the company. Both traditional and modern discounted cash flow methods have advantages and

Investment decisions / capital Budgeting

The document discusses capital budgeting and capital expenditure decisions made by firms for long-term investments. These decisions involve massive investments that exchange current funds for future benefits over many years, bringing uncertainty and risks. Key factors in capital budgeting include growth, risk, funding, and irreversibility. The goals of capital budgeting are to maximize shareholder wealth and allow for ranking projects based on their true profitability using techniques like net present value, internal rate of return, profitability index, payback period, and accounting rate of return.

Cost of capital

This document discusses the cost of capital. It defines cost of capital as the minimum rate of return that a firm must earn on its investments to maintain its value. Cost of capital has several components, including the return at zero risk, and premiums for business risk and financial risk. The document also discusses the different types of capital like debt, equity and retained earnings, and how to compute the cost of each. It explains weighted average cost of capital is calculated by weighting the costs of different sources of capital by their proportions.

Financial risk management ppt @ mba finance

This document provides an overview of financial risk management. It discusses key concepts such as risk, risk stratification, risk management approaches, interest rate risk, and term structure theories. The key points are:
1. Financial risk management involves monitoring risks and managing their impact on a firm. It uses modern finance theories to balance risk taken with expected reward.
2. Risk can be stratified into known probabilities, known parameters but uncertain quantification, unknown causation/interactions, and undiscovered or unmanifested risks.
3. A risk management approach involves identifying, measuring, and adjusting risks through behavior changes, insurance, hedging, and other means. Managing core business risks internally and hedging economic risks

Accounting rate of return

The document defines accounting rate of return (ARR) as the ratio of estimated accounting profit to average investment. ARR is calculated by taking the average accounting profit and dividing it by the average investment. Projects should be accepted if their ARR is greater than or equal to the required accounting rate of return, and between mutually exclusive projects the one with the highest ARR should be accepted. An example calculation is shown to illustrate determining ARR for a project with initial investment, annual cash inflows, depreciation, and scrap value.

Capital budgeting

This document provides an overview of capital budgeting and investment decision making. It defines key terms like capital budgeting, investment decisions, cash flows, net present value, and discounted cash flow techniques. It also summarizes several approaches to evaluating investment projects, including payback period, accounting rate of return, net present value, and internal rate of return. The document emphasizes the importance of considering the time value of money when analyzing projects with cash flows occurring over multiple periods.

Types of risk

This document discusses different types of risk that businesses may face. It defines risk as uncertainty concerning potential losses and distinguishes it from uncertainty where outcomes are completely unknown. The document then examines several specific types of risk in more detail, including credit risk, asset liability gap risk, interest rate risk, market risk, currency risk, and due diligence risk. It provides examples to illustrate each type of risk and how businesses can potentially experience losses due to these risks. Finally, the document concludes that risk control aims to identify, assess, and prepare for potential hazards and disruptions through approaches like avoidance, loss prevention, and diversification.

The capital budgeting process

This document discusses key concepts related to capital budgeting and risk analysis. It begins with definitions of capital budgeting as the process of identifying, evaluating, planning, and financing capital investment projects. It describes the main features of capital budgeting projects as having large anticipated benefits, high risk, and a long time period between initial outlay and return.
The document then covers various capital budgeting techniques for evaluating projects, including payback period, net present value (NPV), and internal rate of return (IRR). It provides examples of calculating each measure and the criteria for accepting projects. Finally, it discusses risk in capital budgeting, defining it as uncertainty in cash flow forecasts, and methods for measuring risk, such as

Capital budgeting

,
capital budgeting
,
concept of capital budgeting
,
the capital budgeting process
,
significance of capital budgeting
,
classification of investment project proposals
,
techniques of capital budgeting
,
types of project

Risk, return, and portfolio theory

The document discusses risk and return in investments. It defines key concepts such as realized and expected return, ex-ante and ex-post returns, sources and measurements of risk including standard deviation and coefficient of variation. It also discusses the risk-return tradeoff and how higher risk investments require higher potential returns to compensate for additional risk.

Receivables management

- The document discusses receivables management. Receivables refer to amounts owed by customers from credit sales.
- The objectives of receivables management include optimizing investment in receivables, balancing credit sales and investment, maximizing firm value, and achieving a trade-off between risk and return.
- Costs associated with receivables include opportunity costs, collection costs, delinquency costs, and default costs. Firms must choose an optimal credit policy that balances liberal policies which increase sales versus stringent policies which reduce risks.

Foreign exchange exposure PPT

Foreign exchange exposure is the risk associated with activities involving currencies other than a firm's home currency. It is the risk that foreign currencies may fluctuate in a way that financially harms the firm. There are three main types of foreign exchange exposure: transaction, economic, and translation. Firms can assess and manage their exposures through hedging strategies like financial contracts and operational techniques. Whether to hedge depends on factors like a firm's currency forecasts and focus on its core business versus currency speculation.

Payback period by harikrishnanan

Payback period (PP) is the number of years it takes for a company to recover its original investment in a project, when net cash flow equals zero. In the calculation of the payback period, the cash flows of the project must first be estimated. The payback period is then a simple calculation.

Cash and marketable securities management

Cash management and marketable securities are key areas of working capital management. Cash is held for transactional, precautionary and speculative motives to meet routine payments and unexpected needs. The objectives of cash management are to meet payment schedules while minimizing idle cash balances. Factors determining cash needs include synchronizing cash inflows and outflows, costs of shortfalls, and excess cash balances. Marketable securities alternatives that provide liquidity include treasury bills, commercial paper, certificates of deposit, bankers' acceptances, money market funds and intercorporate deposits.

financial system

The document provides an introduction to financial systems, including definitions, key components, and functions. It discusses that a financial system consists of institutions, markets, instruments, and services that facilitate the transfer of funds. The main components are financial institutions like banks, markets where assets are traded, various financial services, and instruments/assets like stocks, bonds, and mutual funds. Financial systems play an important role in allocating resources and facilitating economic growth.

Functions of financial manager

The functions of a financial manager include making investment, financing, and dividend decisions. A financial manager is responsible for the financial health of an organization by producing financial reports, directing investment activities, and developing long-term financial strategies and goals. Some of the primary roles of a financial manager are performing financial analysis and planning, deciding how to invest funds, determining the best sources of financing, and deciding how to distribute profits between shareholders and retained earnings. In addition to these core duties, a financial manager also forecasts future profits, allocates resources and funds, and represents the interests of shareholders.

Functions of finance

Functions of finance

Financial Forecasting & Planning

Financial Forecasting & Planning

Investment Management Risk and Return

Investment Management Risk and Return

Stock Valuation

Stock Valuation

Capital Budgeting Decisions

Capital Budgeting Decisions

Investment decisions / capital Budgeting

Investment decisions / capital Budgeting

Cost of capital

Cost of capital

Financial risk management ppt @ mba finance

Financial risk management ppt @ mba finance

Accounting rate of return

Accounting rate of return

Capital budgeting

Capital budgeting

Types of risk

Types of risk

The capital budgeting process

The capital budgeting process

Capital budgeting

Capital budgeting

Risk, return, and portfolio theory

Risk, return, and portfolio theory

Receivables management

Receivables management

Foreign exchange exposure PPT

Foreign exchange exposure PPT

Payback period by harikrishnanan

Payback period by harikrishnanan

Cash and marketable securities management

Cash and marketable securities management

financial system

financial system

Functions of financial manager

Functions of financial manager

Discounted measures

The document discusses several discounted measures used to evaluate project worth: net present value (NPV), net benefit investment ratio (NBIR), benefit-cost ratio (BCR), and internal rate of return (IRR). It provides the formulas and decision rules for each measure. It notes that while NPV, NBIR, BCR, and IRR are commonly used, IRR can be unreliable in situations with non-conventional cash flows or mutually exclusive projects, and that NPV should be used to resolve conflicts between decision rules.

Npv n other invest cri lec 4

Basic terms review
Capital budgeting introduction
Capital budgeting technique
Sensitivity analysis
Scenario analysis
present value
potential difficulties and strength of capital budgeting

Capital Budgeting

The document discusses various capital budgeting techniques for evaluating investment projects including:
1. Net present value (NPV) which calculates the present value of cash inflows less the present value of cash outflows.
2. Internal rate of return (IRR) which is the discount rate that makes the NPV equal to zero.
3. Sensitivity analysis which involves changing assumptions like cash flows, costs, life, and discount rates to determine how sensitive the NPV is to changes in these factors.
4. Other methods discussed include profitability index, certainty equivalent, standard deviation, coefficient of variation, inflation adjustments, and comparing projects based on multiple criteria.

Capital investment appraisal.ppt

This document discusses various capital investment appraisal methods for evaluating proposed capital investment projects. It describes the net present value (NPV) method, which discounts future cash flows to determine if a project's return is higher than the required rate of return. The internal rate of return (IRR) is the annual return that makes the NPV equal to zero. The payback period measures the time to recover initial investment. The accounting rate of return compares average accounting profit to average investment cost. The NPV method is preferred as it considers timing of cash flows and future value of money.

Chapter8 investmentcriteria

This document discusses various investment criteria used to evaluate capital budgeting projects. It covers net present value, benefit-cost ratio, internal rate of return, payback period, and accounting rate of return. Formulas are provided for calculating each method along with their pros and cons. The key steps in investment evaluation are estimating costs and benefits, assessing risk, calculating the cost of capital, and using these criteria to determine if a project is worthwhile.

NPV is net present value of document.ppt

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.

New Approach to NPV

The document discusses Net Present Value (NPV) as a capital budgeting decision rule. It defines NPV as the sum of the present values of all cash flows from a project over its lifetime, discounted using the cost of capital. It notes that NPV is additive, intermediate cash flows are reinvested at the cost of capital, and discount rates can vary over time. The document also discusses limitations of NPV, such as it being expressed in absolute rather than relative terms, and not considering project life.

Captial bugting

The document provides an overview of various capital budgeting techniques including payback period, net present value (NPV), internal rate of return (IRR), profitability index, and modified internal rate of return (MIRR). It discusses how to apply these methods to evaluate independent and mutually exclusive projects. It also covers topics like capital rationing, increasing marginal cost of capital, and choosing the optimal economic life of a project.

Time Value Of Money

The document discusses key concepts related to time value of money including:
1) Time value of money measures opportunity cost and the interest rate is the price paid to rent money.
2) Compound interest means interest is earned on prior interest amounts as well as the principal over time.
3) Factors like inflation and risk impact interest rates in the real world compared to theoretical risk-free rates.

Finanacial anaylsis

The document analyzes the financial viability of a housing investment scheme for government officers. It presents a 34-year cash flow statement showing annual rental income from a government-provided house increasing by 10% every 5 years. The net present value is calculated using a 4.2% discount rate. The analysis determines that over the 34-year period, the total rental income of PKR 9.4 million is more than enough for an officer to purchase a house, demonstrating the scheme is financially sound.

Capital budgeting

This document discusses three capital budgeting techniques: net present value, payback period, and internal rate of return. Net present value calculates the present value of future cash flows from a project minus the initial investment. Payback period is the time needed for a project's cash inflows to recover its initial cash outflow. Internal rate of return is the discount rate that results in a net present value of zero for a project's cash flows.

economy Chapter5_by louy Al hami

The document discusses various methods for evaluating the economic profitability of capital investment projects, including present worth, future worth, annual worth, internal rate of return, and external rate of return. It provides examples of how to use these methods to calculate metrics like net present value, internal rate of return, payback period, and compare them to required rates of return to determine if projects are economically justified. The goal is to evaluate if a project's revenues over time can recover its costs and provide an adequate return given the risks.

capital budgeting concept meaning and types

The document discusses various capital budgeting techniques used to evaluate long-term investment projects. It defines capital budgeting as a firm's decision to invest current funds in long-term assets that provide benefits over several years. The capital budgeting process involves identifying projects, assembling proposals, decision making, budget preparation, implementation, and review. Techniques discussed include payback period, net present value (NPV), internal rate of return (IRR), profitability index, and accounting rate of return. NPV and IRR are commonly used, with NPV preferred as it considers all cash flows and time value of money.

CAPITAL BUDGETING DECISIONS.ppt

The investment decisions of a firm are generally known as the capital budgeting, or capital expenditure decisions.
The firm’s investment decisions would generally include expansion, acquisition, modernisation and replacement of the long-term assets. Sale of a division or business (divestment) is also as an investment decision.
Decisions like the change in the methods of sales distribution, or an advertisement campaign or a research and development programme have long-term implications for the firm’s expenditures and benefits, and therefore, they should also be evaluated as investment decisions.

Relationship between IRR & NPV

The document discusses the relationship between internal rate of return (IRR) and net present value (NPV) as measures for evaluating potential investments and capital projects. It explains that IRR indicates the potential growth percentage of an investment, while NPV indicates the value of a project's income in today's dollars. It then discusses modified IRR, how it differs from standard IRR by accounting for reinvested returns, and how it relates to NPV and can help address issues with multiple IRRs that arise with negative cash flows or when comparing mutually exclusive projects.

Lecture cash flow evaluation new

This document discusses various methods for evaluating engineering projects using cash flow analysis and discounted cash flow methods. It defines key terms like present value, net present value, internal rate of return, payback period, and discount rates. Examples are provided to illustrate how to use these methods to calculate metrics like NPV, IRR, payback period for both acceptance/rejection of projects.

Lecture cash flow evaluation new

This document discusses various methods for evaluating engineering projects using cash flow analysis and discounted cash flow methods. It defines key terms like present value, net present value, internal rate of return, payback period, and discount rates. Examples are provided to illustrate how to use these methods to calculate metrics like NPV, IRR, payback period for both acceptance/rejection of projects.

Cost voulme rofit analysis

This document provides an overview of capital budgeting concepts including net present value (NPV) and internal rate of return (IRR). It discusses how NPV and IRR are used to evaluate whether a single project should be undertaken (the "yes-no" decision) and how to rank multiple projects when only one can be chosen. The document notes that NPV and IRR sometimes provide different answers for these decisions and discusses the appropriate criteria to use in those cases. It also briefly introduces other capital budgeting principles like sunk costs, salvage values, taxation, and foregone opportunities that are covered in more detail later.

Class 28 30 (Risk Analysis In Capital Budgeting)

The document discusses different types of risk in capital budgeting projects including project-specific, competitive, industry, and market risks. It also discusses three perspectives of risk: standalone, firm, and market risk. It then explains three approaches to analyzing risk: sensitivity analysis, scenario analysis, and decision tree analysis. Finally, it discusses how to incorporate project risk into capital budgeting decisions such as using a risk-adjusted discount rate or certainty equivalent method.

Finanacial anaylsis

This document discusses financial analysis and its key components. Financial analysis assesses the viability, stability, and profitability of projects through evaluating all costs, revenues, taxes, and more. It aims to determine the minimum viable investment. Major components of financial analysis include accounting statements showing cash flows, income/expenditure, and balance sheets. Key indicators derived from these statements are net present value, internal rate of return, payback period, and break-even point. Projects are typically selected based on having an internal rate of return higher than the discount rate and a payback period that is short.

Discounted measures

Discounted measures

Npv n other invest cri lec 4

Npv n other invest cri lec 4

Capital Budgeting

Capital Budgeting

Capital investment appraisal.ppt

Capital investment appraisal.ppt

Chapter8 investmentcriteria

Chapter8 investmentcriteria

NPV is net present value of document.ppt

NPV is net present value of document.ppt

New Approach to NPV

New Approach to NPV

Captial bugting

Captial bugting

Time Value Of Money

Time Value Of Money

Finanacial anaylsis

Finanacial anaylsis

Capital budgeting

Capital budgeting

economy Chapter5_by louy Al hami

economy Chapter5_by louy Al hami

capital budgeting concept meaning and types

capital budgeting concept meaning and types

CAPITAL BUDGETING DECISIONS.ppt

CAPITAL BUDGETING DECISIONS.ppt

Relationship between IRR & NPV

Relationship between IRR & NPV

Lecture cash flow evaluation new

Lecture cash flow evaluation new

Lecture cash flow evaluation new

Lecture cash flow evaluation new

Cost voulme rofit analysis

Cost voulme rofit analysis

Class 28 30 (Risk Analysis In Capital Budgeting)

Class 28 30 (Risk Analysis In Capital Budgeting)

Finanacial anaylsis

Finanacial anaylsis

- 2. Presented By N oman A nil F ahad A dil RISK IN CAPITAL BUDGETING AND TIME VALUE OF MONEY
- 9. Purpose…
- 10. Planning for Capital Assets
- 20. Examples Scenario Probability NPV(000) Worst 0.25 $ 15 Base 0.50 82 Best 0.25 148 E(NPV) = $ 82 (NPV) = 47 CV(NPV) = (NPV)/E(NPV) = 0.57 Since CV = 0.57 > 0.4, this project has high risk .
- 25. Noman Usman Anil Saleem Fahad Ali Adil Rahman