• The important points are: Capital budgeting is the most significant financial activity of the firm.. Capital budgeting determines the core activities of the firm over a long term fu
Trang 1Capital Budgeting: Financial Appraisal of Investment Projects
Welcome to the Power Point Presentation
Chapter 1
Trang 2• Chapter 1 introduces the concept of capital
budgeting, and sets out the structure of the book.
• The important points are:
Capital budgeting is the most significant
financial activity of the firm.
Capital budgeting determines the core
activities of the firm over a long term future.
Trang 3Capital Budgeting Within The Firm
T h e P o s it io n o f C a p it a l B u d g e t in g
L o n g T e rm A s s e ts S h o r t T e r m A s s e ts
In v e s tm e n t D e c is o n
D e b t /E q u it y M ix
F in a n c in g D e c is io n
D iv id e n d P a y o u t R a t io
D iv id e n d D e c is io n
F in a n c ia l G o a l o f th e F ir m :
W e a lth M a x im is a tio n
Trang 4Examples of ‘Long Term Assets’
Trang 5Aspects of Capital Budgeting
Capital Budgeting involves:
Committing significant resources.
Planning for the long term: 5 to 50 years.
Decision making by senior management Forecasting long term cash flows.
Estimating long term discount rates.
Analyzing risk.
Trang 6Aspects of Capital Budgeting
Capital Budgeting:
Emphasize the firm’s goal of wealth
maximization, which is expressed as
maximizing an investment’s Net
Present Value: Ch 1
Requires calculating a project’s relevant cash flows: Ch 2
Trang 7Aspects of Capital Budgeting
•Time series analysis by the application
of simple and multiple regression, and moving averages:Ch 3
Capital Budgeting Uses:
Sophisticated forecasting
techniques:-•Qualitative forecasting by the
application of various techniques, such
Trang 8Aspects of Capital Budgeting
Capital Budgeting requires:
Application of time value of money formulae: Ch 5
Application of NPV analysis to
forecasted cash flows: Ch 6
Trang 9Aspects of Capital Budgeting
Application of Sensitivity and Break
Even analyses to analyze risk:Ch 8.
Application of Simulation and Monte
Carlo Analysis as extra risk analysis:Ch 9.
Application of long term forecasting
and risk analysis to projects with very
Risk Analysis – RADR and CE: Ch 7
Trang 10Aspects of Capital Budgeting
Application of optimization techniques
to projects which have constrained
resources: Ch 11,12.
Development and application of generic and specific financial models: Ch 13.
Trang 11Aspects of Capital Budgeting
Application of cash flow forecasting, and NPV analysis to all aspects of property investment projects: Ch 14,15
Application of NPV analysis under the additional risks associated with
international investments: Ch 16.
Trang 12Summary of This Book
• This textbook proceeds from the basic
to the advanced.
of wealth maximization.
Trang 13Summary of This Book
spreadsheets accessible on the Web
• Answers to all end of chapter review
questions are available on the Web
chapters are available on the Web