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Small Business Management Chapter 22 PowerPoint
1.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 22 Managing the Firmās Assets
2.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LEARNING OBJECTIVES By studying this chapter, you should be able toā¦ 22-1 Describe the working capital cycle of a small business. 22-2 Identify the important issues in managing a firmās cash flows. 22-3 Explain the critical issues in managing accounts receivable. 22-4 Discuss the key financial issues in managing inventory. 22-5 Describe the important issues in managing accounts payable. 22-6 Calculate and interpret a companyās cash conversion period. 22-7 Discuss the techniques commonly used in making capital budgeting decisions. 22-8 Describe the capital budgeting practices of small firms.
3.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1 THE WORKING CAPITAL CYCLE (slide 1 of 3) ā¢ Working capital is a firmās current assets (primarily cash, accounts receivable, and inventory). Net working capital Current assets Current (short-term) liabilities ļ½ ļ ā¢ Working capital management ā The management of current assets and current liabilities. ā¢ Working capital cycle ā The daily flow of resources through a firmās working capital accounts.
4.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1 THE WORKING CAPITAL CYCLE (slide 2 of 3) ā¢ The steps in a firmās working capital cycle are as follows: 1. Purchase or produce inventory for sale, which increases inventory on hand and (a) decreases cash if cash is used to pay for the inventory or (b) increases accounts payable if the inventory is purchased on credit. 2. (a) Sell the inventory for cash, which increases cash, or (b) sell the inventory on credit, which increases accounts receivable. 3. (a) Pay the accounts payable, which decreases accounts payable and decreases cash, or (b) pay operating expenses and taxes, which decreases cash. 4. Collect the accounts receivable when due, which decreases accounts receivable and increases cash. 5. Begin the cycle again.
5.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22.1 Working Capital Cycle
6.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1 THE WORKING CAPITAL CYCLE (slide 3 of 3) ā¢ The only current liability included in the working capital cycle is accounts payable, which affects the timing of payments for inventory. ā¢ Little can be done to āmanageā accruals, so they are ignored as part of the working capital cycle. ā¢ A short-term bank note is not part of the working capital cycle. ā¢ In this context, working capital should be thought of as the liquid assets (cash and those soon to be converted into cash) that are required to run and grow the business less any credit provided by suppliers in the form of accounts payable. ā¢ Depending on the industry, the working capital cycle may be long or short. ā¢ Whatever the industry, however, management should be working continuously to shorten the cycle.
7.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1a Timing and Size of Working Capital Investments (slide 1 of 2) ā¢ The working capital cycle begins with the purchase or production of inventory and ends with the collection of accounts receivable.
8.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22.2 Working Capital Time Line (slide 1 of 2) ā¢ The key dates are as follows: ā¢ Day a: Inventory is ordered in anticipation of future sales. ā¢ Day b: Inventory is received, and the supplier extends credit in the form of accounts payable. ā¢ Day c: Inventory is sold on credit. ā¢ Day d: Accounts payable for purchases of inventory come due and are paid. ā¢ Day e: Accounts receivable are collected.
9.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22.2 Working Capital Time Line (slide 2 of 2) ā¢ The investing and financing implications of the working capital cycle are as follows: ā¢ Money is invested in inventory from day b to day c. ā¢ The supplier provides financing for the inventory from day b to day d. ā¢ Money is invested in accounts receivable from day c to day e. ā¢ Financing of the firmās investment in accounts receivable must be provided from day d to day e.
10.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1a Timing and Size of Working Capital Investments (slide 2 of 2) ā¢ Cash conversion period ā The time required to convert paid-for inventory and accounts receivable into cash. ā¢ During this period, the firm no longer has the benefit of supplier financing (accounts payable). ā¢ The longer this period lasts, the greater the potential cash flow problems for the firm.
11.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22.3 Working Capital Time Line for Pokey, Inc. ā¢ On August 15, Pokey, Inc., ordered inventory that it received on August 31. ā¢ Pokey, Inc., must pay its supplier for the inventory on September 30, before eventually reselling it on October 15. ā¢ It collects from the customers on November 30. ā¢ Thus, the cash conversion period is 60 days, and the firmās managers must find a way to finance this investment in inventory and accounts receivable or else the company will experience cash flow problems.
12.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22.3 Working Capital Time Line for Quick Turn Company ā¢ On August 15, Quick Turn Company ordered inventory that it received on August 31. ā¢ Quick Turn Company must pay its supplier for the inventory on October 31. ā¢ However, Quick Turn Company sells its product on September 30 and collects from its customers on October 31. ā¢ Thus, there is no cash conversion period because the supplier is essentially financing Quick Turn Companyās working capital needs.
13.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1b Examples of Working Capital Management (slide 1 of 8) ā¢ To gain an even better understanding of the working capital cycle, the next seven slides show what happens to Pokey, Inc.ās, balance sheet and income statement.
14.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1b Examples of Working Capital Management (slide 2 of 8) ā¢ July: Pokey, Inc., starts operations in July with $1,000, financed by $300 in long-term debt and $700 in common stock. At the outset, the owner purchased $600 worth of fixed assets, leaving the remaining $400 in cash. At this point, the balance sheet would appear as follows: Cash $ 400 Fixed assets 600 TOTAL ASSETS $1,000 Long-term debt $ 300 Common stock 700 TOTAL DEBT AND EQUITY $1,000
15.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1b Examples of Working Capital Management (slide 3 of 8) ā¢ August: On August 15, the firmās managers ordered $500 worth of inventory, which was received on August 31. The supplier allowed Pokey, Inc., 30 days from the time the inventory was received to pay for the purchase. Thus, inventory and accounts payable both increased by $500 when the inventory was received. As a result of these transactions, the balance sheet would appear as follows:
16.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1b Examples of Working Capital Management (slide 4 of 8) ā¢ September: On September 30, the firm paid for the inventory. Both cash and accounts payable decreased by $500, shown as follows:
17.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1b Examples of Working Capital Management (slide 5 of 8) ā¢ October: On October 15, merchandise was sold on credit for $900. The firm incurred operating expenses in the amount of $250, to be paid in early November. An additional $25 in accrued expenses resulted from accruing taxes that will be owed on the firmās earnings. Finally, in October, the firmās accountants recorded $50 in depreciation expenses, resulting in accumulated depreciation of $50. The results are as follows:
18.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1b Examples of Working Capital Management (slide 6 of 8) ā¢ The relationship between Pokey, Inc.ās, balance sheet and income statement is as follows: Change in the Balance Sheet Effect on the Income Statement Increase in accounts receivable of $900 = Sales of $900 Decrease in inventory of $500 = Cost of goods sold of $500 Increase in accrued operating expenses of $250 = Operating expenses of $250 Increase in accumulated depreciation of $50 = Depreciation expense of $50 Increase in accrued taxes of $25 = Tax expense of $25
19.
Ā© 2020 Cengage
LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1b Examples of Working Capital Management (slide 7 of 8) ā¢ November: In November, the accrued expenses were paid, which resulted in a $250 decrease in accrued expenses. At the end of November, the accounts receivable were collected, yielding a $900 increase in cash and a $900 decrease in accounts receivable. The final series of balance sheets is as follows:
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-1b Examples of Working Capital Management (slide 8 of 8) ā¢ The income statement for the period ending November 30 is as follows: Sales revenue $ 900 Cost of goods sold (500) Gross profit $ 400 Operating expenses: Cash expense $(250) Depreciation expense (50) Total operating expenses $(300) Operating income $ 100 Income tax (25%) (25) Net income $ 75 ā¢ The $75 in profits is reflected as retained earnings on the balance sheet to make the numbers match.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-2 MANAGING CASH FLOWS (slide 1 of 2) ā¢ A firmās cash flows consist of cash flowing into a business (through sales revenue, borrowing, etc.) and cash flowing out of the business (through purchases, operating expenses, etc.).
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22.4 Flow of Cash Through a Business
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-2 MANAGING CASH FLOWS (slide 2 of 2) ā¢ Calculating cash flows requires that a small business owner distinguish between sales revenue and cash receipts. ā¢ Revenue is recorded at the time a sale is made but do not affect cash flows at that time unless the sale is a cash sale. ā¢ Cash receipts are recorded when money actually flows into the firm, often a month or two after the sale. ā¢ Calculating cash flows also requires that a small business owner distinguish between expenses and disbursements. ā¢ Expenses occur when materials, labor, or other items are used. ā¢ Payments (disbursements) for these expense items may be made later, when checks are issued. ā¢ To anticipate when cash will enter and leave a business, an owner must develop a cash budget.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-3 MANAGING ACCOUNTS RECEIVABLE ā¢ The most important factor in managing cash well within a small firm is the ability to collect accounts receivable quickly.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-3a How Accounts Receivable Affect Cash ā¢ Granting credit to customers, although primarily a marketing decision, directly affects a firmās cash account. ā¢ By selling on credit and thus allowing customers to delay payment, the selling firm delays the inflow of cash. ā¢ The total amount of customersā credit balances is carried on the balance sheet as accounts receivable. ā¢ Of all noncash assets, accounts receivable are close to becoming cash. ā¢ Sometimes called near cash, or receivables, accounts receivable typically are collected and become cash within 30 to 60 days following a sale.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-3b The Life Cycle of Accounts Receivable (slide 1 of 3) ā¢ The receivables cycle contains the following stages: 1. A credit sale is made. 2. In most businesses, an invoice is then prepared and mailed to the purchaser. 3. When the invoice is received, the purchaser processes it, prepares a check, and mails the check in payment to the seller. ā¢ Under ideal circumstances, each of these steps is taken in a timely manner. ā¢ However, delays can occur at any stage of this process. ā¢ A key goal of every business should be to minimize the average time it takes customers to pay their bills. ā¢ By streamlining administrative procedures, a firm can facilitate the task of sending out bills, thereby generating cash more quickly.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-3b The Life Cycle of Accounts Receivable (slide 2 of 3) ā¢ Days sales outstanding (average collection period) ā The number of days, on average, that a firm extends credit to its customers. ā¢ It is calculated as follows: Accounts receivable Days sales outstanding Annual credit sales 365 days ļ½ ļø ā¢ The following are some tips for managing collections on accounts: ā¢ Hire someone else to handle collections one day per week. ā¢ Accept credit cards. ā¢ Sell the receivables to a third party. ā¢ Where possible, require prepayment. ā¢ For a service business, write a detailed work plan and payment schedule, and have it signed by the customer.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-3b The Life Cycle of Accounts Receivable (slide 3 of 3) ā¢ The following credit management practices can have a positive effect on a firmās cash flows: ā¢ Minimize the time between shipping, invoicing, and sending notices on billings. ā¢ Review previous credit experiences to determine impediments to cash flows. ā¢ Provide incentives for prompt payment by granting cash discounts or charging interest on delinquent accounts. ā¢ Age accounts receivable on a monthly or even a weekly basis in order to identify delinquent accounts as quickly as possible. ā¢ Use the most effective methods for collecting overdue accounts. ā¢ Use a lock box. ā¢ Lock box ā A post office box for receiving remittances from customers.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-3c Accounts Receivable Financing (slide 1 of 2) ā¢ Some small businesses speed up the cash flow from accounts receivable by borrowing against them. ā¢ By financing receivables, these firms can often secure the use of their money 30 to 60 days earlier than would be possible otherwise. ā¢ Two types of accounts receivable financing are available: 1. Pledged accounts receivable ā Accounts receivable used as collateral for a loan. 2. Factoring ā A business sells its accounts receivable to a finance company. ā¢ The finance company thereby assumes the bad-debt risk associated with the receivables it buys.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-3c Accounts Receivable Financing (slide 2 of 2) ā¢ Advantages of accounts receivable financing: ā¢ It provides immediate cash flows for firms that have limited working capital. ā¢ The volume of borrowing can be quickly expanded proportionally in order to match a firmās growth in sales and accounts receivable. ā¢ Disadvantages of accounts receivable financing: ā¢ The cost is high. ā¢ Rates typically run several points above the prime interest rate. ā¢ Factors charge a fee to compensate them for their credit investigation activities and for the risk that customers may default in payment. ā¢ Pledging receivables may limit a firmās ability to borrow from a bank by removing a prime asset from its available collateral.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-4 MANAGING INVENTORY ā¢ Inventory is a ānecessary evilā in a financial management system. ā¢ It is ānecessaryā because supply and demand cannot be managed to coincide precisely with day- to-day operations. ā¢ It is an āevilā because it ties up funds that are not actively productive.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-4a Reducing Inventory to Free Cash ā¢ A concerted effort to manage inventory can trim excess inventory and free cash for other uses.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-4b Monitoring Inventory ā¢ When it comes to managing inventory, small business owners tend to overstock. ā¢ One of the first steps in managing inventory is to discover what is in inventory and how long it has been there. ā¢ A yearly inventory for accounting purposes is inadequate for proper inventory control. ā¢ Days in inventory ā The number of days, on average, that a company holds inventory. ā¢ It is calculated as follows: Inventory Days in inventory Cost of goods sold 365 days ļ½ ļø
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-4c Controlling Stockpiles ā¢ Small business managers tend to overbuy inventory for several reasons: ā¢ Enthusiasm may lead the manager to forecast greater demand than is realistic. ā¢ The personalization of the businessācustomer relationship may motivate a manager to stock everything customers want. ā¢ A price-conscious manager may be overly susceptible to a vendorās appeal to ābuy now, because prices are going up.ā ā¢ Improperly managed and uncontrolled stockpiling may greatly increase inventory carrying costs and place a heavy drain on the funds of a small business.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-4 MANAGING ACCOUNTS PAYABLE (slide 1 of 2) ā¢ Accounts payable, a primary source of financing for small firms, directly affects a firmās cash flow situation. ā¢ As long as a payable is outstanding, the buying firm can keep cash equal to that amount in its checking account. ā¢ When payment is made, however, the firmās cash account is reduced accordingly. ā¢ Financial management of accounts payable hinges on paying at various times and renegotiating in some cases. ā¢ By buying on credit, a small business is using creditorsā funds to supply short-term cash needs. ā¢ The longer creditorsā funds can be borrowed, the better. ā¢ Payment, therefore, should be delayed as long as acceptable under the agreement.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-4 MANAGING ACCOUNTS PAYABLE (slide 2 of 2) ā¢ Days in payables ā The number of days, on average, that a business takes to pay its accounts payable. ā¢ It is calculated as follows: Accounts payable Days in payables Cost of goods sold 365 days ļ½ ļø ā¢ Typically, accounts payable (trade credit) involve payment terms that include a cash discount. ā¢ Example: Terms of 3/10, net 30 offer a 3 percent potential discount. ā¢ By failing to take a discount, a business typically pays a higher rate for use of a supplierās money.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22.5 An Accounts Payable Timetable for Terms of 3/10, Net 30 Timetable (days after invoice date) Settlement Costs for a $20,000 Purchase Days 1 through 10 $19,400 Days 11 through 30 $20,000 Days 31 and thereafter $20,000 + possible late penalty and deterioration in credit rating
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-6 CASH CONVERSION PERIOD REVISITED ā¢ The cash conversion period is the time span during which a firmās investment in accounts receivable and inventory must be financed. ā¢ The cash conversion period is computed as follows: Cash conversion period Days in inventory Days sales outstanding Days in payables ļ½ ļ« ļ
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-7 CAPITAL BUDGETING TECHNIQUES (slide 1 of 2) ā¢ Capital budgeting is the management of long-term assetsāequipment and plant. ā¢ Some capital budgeting decisions that might be made by a small firm include the following: ā¢ Developing a new product that shows promise but requires additional study and improvement. ā¢ Replacing a firmās delivery truck with newer models. ā¢ Expanding sales activity into a new territory. ā¢ Constructing a new building. ā¢ Hiring additional salespeople to intensify selling in the existing market. ā¢ Capital budgeting analysis ā An analytical method that helps managers make decisions about long-term investments.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-7 CAPITAL BUDGETING TECHNIQUES (slide 2 of 2) ā¢ The three major techniques for making capital budgeting decisions are the: 1. Accounting return on investment technique. 2. Payback period technique. 3. Discounted cash flow technique. ā¢ They all attempt to address whether future benefits from an investment will exceed the cost of making the investment. ā¢ Three simple rules are used in judging the merits of an investment: 1. The investor prefers more cash rather than less cash. 2. The investor prefers cash sooner rather than later. 3. The investor prefers less risk rather than more risk.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-7a Accounting Return on Investment ā¢ Accounting return on investment technique ā A capital budgeting technique that compares expected average annual after-tax profits to the average book value of an investment. ā¢ The accounting return on a proposed investment is calculated as follows: Average annual after-tax profits Accounting return on investment Average book value of the investment ļ½ ā¢ The accounting return on investment technique has two significant shortcomings: 1. It is based on accounting profits rather than actual cash flows received. 2. It ignores the time value of money.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-7b Payback Period ā¢ Payback period technique ā A capital budgeting technique that measures the amount of time it will take to recover the initial cash outlay of an investment. ā¢ The merits of a project are judged on whether the initial investment outlay can be recovered in less time than some maximum acceptable payback period. ā¢ Example: An owner may not want to invest in any project that will require more than five years to recoup the original investment. ā¢ This technique has two major weaknesses: 1. It ignores the time value of money. 2. It doesnāt consider cash flows received after the payback period.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-7c Discounted Cash Flows (slide 1 of 2) ā¢ Discounted cash flow (DCF) techniques ā Capital budgeting techniques that compare the present value of future cash flows with the cost of the initial investment. ā¢ DCF techniques take into consideration the fact that cash received today is more valuable than cash received one year from now (the time value of money).
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-7c Discounted Cash Flows (slide 2 of 2) ā¢ Two DCF techniques are: 1. Net present value (NPV) ā The present value of expected future cash flows less the initial investment outlay. ā¢ If the NPV of the investment is positiveāthat is, if the present value of future cash flows discounted at the rate of return required to satisfy the firmās investors exceeds the initial outlayā the project is acceptable. 2. Internal rate of return (IRR) ā The rate of return a firm expects to earn on a project. ā¢ For the investment outlay to be attractive, the IRR must exceed the firmās cost of capitalāthe rate of return required to satisfy the firmās investors. ā¢ DCF techniques provide the best basis for decision making in capital budgeting analysis.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-8 CAPITAL BUDGETING PRACTICES IN SMALL FIRMS (slide 1 of 2) ā¢ Increasing numbers of small business owners are using some type of quantitative measure to assess a capital investment, along with judgment based on their experience. ā¢ Still, only a small number of owners rely on DCF techniques. ā¢ The short-term mindset of small firms may explain, to some degree, why they seldom use the conceptually richer techniques for evaluating long-term investments.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22-8 CAPITAL BUDGETING PRACTICES IN SMALL FIRMS (slide 2 of 2) ā¢ Many factors affect decision making in a small company: ā¢ Nonfinancial variables. ā¢ Attempts to just survive. ā¢ Survival often becomes the top priority when the undercapitalization and liquidity problems directly affect the decision-making process. ā¢ The uncertainty of cash flows. ā¢ The uncertainty of cash flows makes long-term forecasting and planning seem unappealing and even a waste of time. ā¢ Difficulty in estimating the cost of capital. ā¢ Estimating the cost of capital is more difficult for a small company than for a large firm. ā¢ The limited size of its projects. ā¢ An ownerās lack of a financial management background.
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LearningĀ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Key Terms accounting return on investment technique capital budgeting analysis cash conversion period days in inventory days in payables days sales outstanding (average collection period) discounted cash flow (DCF) techniques internal rate of return (IRR) lock box net present value (NPV) payback period technique pledged accounts receivable working capital cycle working capital management
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