Account Cheet Sheet

Chapter 11(1)Role of Capital Bud lineing Capital budgeting = tools used to mensurate investments in permanent capacity resources: large investment up front, but thusly reap benefits over many old age: e.g. Toyota building immature production facilities, Walmart buying land to build a youthful store, Exxon-Mobile developing a new oil field(2)Need to beak for meter lever of money: (2.1)$1 today is worth more than than $1 a course from now: (2.1.1)if you borrow $1 today, youll have to pay interest (2.1.1)if you have $1 today, you puke earn interest (2.1) speak to allocations dont account for time value of money => use other method actings to evaluate long-term investment stand outs (3) Evaluating a Long-term Investment redact: For example: (3.1)A hospital is thinking of buying an MRI gondola (3.1) It costs $50,000 today (year 0), will last for 5 years (3.1) Expected operating net funds flows (inflows less outflows) from the implement: (3.1.1) Years 1-2: $20,000 a year (3.1.1) Years 3-5: $15,000 a year (3.1) after 5 years, the mold is worth zero (3.1) the hospital can borrow at an interest rate of 10% a year(3.1) Question: Should they invest in the MRI machine? (4) Evaluating a Long-term Investment Project(4.1) First, determine the cash flows for the project: (4.1.1) Amounts and timing of cash inflows and outflows: (4.1.1.



1) Initial outlay, Estimated life of asset, salvage value at the end, Operating cash flows during asset life (4.1.1) Cost of capital (interest rate)(4.1) After that, evaluate projects cash flows using one of the standard methods: (4.1.1) Discounted cash flow methods:(4.1.1.1) simoleons Present Value (NPV), Internal Rate of Return (IRR) (4.1.1) another(prenominal) methods (simpler to use, but somewhat sloppy): (4.1.1.1) Payback method, Modified Payback method , Accounting Rate of Return (ARR)(5) 4 Elements of Project gold Flows(5.1) Initial Outlay: (5.1.1) All up-front costs incurred to ready the asset for its intended use (purchase price + costs of delivery, installation, etc) (5.1) Estimated Life...If you want to get a full essay, order it on our website: Ordercustompaper.com



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