CapitalBudgeting_201.. - CITT

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Discounted Cash Flow – Net Present Value (NPV) • Include Working-Capital Requirements • Working-capital requirements are considered a cash out-flow. For example, an additional investment in inventory is considered a cash out-flow when the goods are held because, while the goods are kept inside the stock room, the firm does not have access to the inventory’s cash value. The firm loses the opportunity to use the money for other investments during the life of the project. Upon termination of the project, there may be a partial recovery of the initial amount invested in working-capital. ©2012, Varmelous Ind. Inc. -- Slide 30
Discounted Cash Flow – Net Present Value (NPV) • Cash Flows from Changes in Overhead • The NPV method requires that we include any incremental cash flow that causes a change in overhead expenses. • However, one must take care in ensuring that this is a truly incremental cash flow. Quite often, overhead expenses are fixed and are incurred whether or not a project is implemented. • An example of a cash flow that would be included is if the new machinery actually reduces the direct labour costs and its associated costs, e.g. employee benefits, i.e. fewer machine operators. ©2012, Varmelous Ind. Inc. -- Slide 31
Page 1 and 2: Capital Budgeting Learning Outcomes
Page 3 and 4: The Concept of the Cost of Capital
Page 9 and 10: Difficulty and importance in findin
Page 11 and 12: Capital Budgeting • When evaluati
Page 13 and 14: Capital Budgeting • Cash Flows: -
Page 15 and 16: Capital Budgeting • Discounted Ca
Page 17 and 18: Discounted Cash Flow - Net Present
Page 29: Discounted Cash Flow - Net Present
Page 39 and 40: Discounted Cash Flow - (IRR) IRR DC
Page 41: About the presenter • Michel has

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