Details of the six methods are shown below. To make explanations easier, one example as shown in Figure 1 will be used. Figure 1 shows the expected cash flows for two projects, S and L. The two projects are assumed to be equally risky, and the cash flows for each year, CFt, reflect purchase cost, investments in working capital, taxes, depreciation, and salvage values... Showed first 250 characters
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Details of the six methods are shown below. To make explanations easier, one example as shown in Figure 1 will be used. Figure 1 shows the expected cash flows for two projects, S and L. The two projects are assumed to be equally risky, and the cash flows for each year, CFt, reflect purchase cost, investments in working capital, taxes, depreciation, and salvage values... Showed next 250 characters
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Capital budgeting is used in making decisions regarding investments in the long term of the company. In order for a company to generate revenues for the future the long term funds that are raised by the company are used to invest in assets...
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DEBT-EQUITY MIX SIMULATION
Debt-Equity Mix Simulation
The investment decision, also known as capital budgeting, is central to the success of the company. Capital budgeting is the process of evaluating and selecting long-term investments (Brealey, Myers, & Marcus, 2007, 189)...
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· Price discrimination is charging different customers different prices for the same product or service.
Robinson-Patman Act prohibits price discrimination where the effect may be to lessen competition...
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Planning and Budgeting
I have to agree with the statement "It is impossible to use DCF methods for evaluating investments in research and development". Despite the failure of taking flexibility into account managers have had to rely on the DCF methods for a long time...
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The Importance of Capital Budgeting
Capital expenditures can be very large and have a significant impact on the firms financial performance. Besides, the investments take time to mature and capital assets are long-term, therefore, if a mistake were done in the capital budgeting process, it will affect the firm for a long period of time...
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Many formal methods are used in capital budgeting, including the techniques such as
Net present value
Internal rate of return
Modified Internal Rate of Return
Net present value (NPV) or net present worth (NPW) is defined as the total present value (PV) of a time series of cash flows...
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in which to place the firm's capital. The process can be simple when viewed in purely mechanical
terms, but a number of subtle issues can obscure the best investment choices...