Week 4 Essay

Submitted By subarashinezumi8
Words: 2941
Pages: 12
Open Document
Lectures so far…Weeks 1-3

FINS1613 Business Finance

 Firm’s objective = Maximise firm value

Lecture 4:

 How to measure firm value?


V  t 1

Capital Budgeting- An Introduction

Ct
1  r t

Core Reading: RTBWJ Chapter 8
Additional Readings: Graham & Harvey (2001)
Truong et al. (2008)

 Financial management decisions:– The Investment Decision
– The Financing Decision
– The Dividend Decision

FINS1613_s2_2010_L4

1

Lecture 4: Learning Objectives

What is capital budgeting?

 Capital budgeting is the process of analysing long-term

 Understand the importance of capital budgeting and

the steps in the process

investment projects that will generate cash flow and deciding:  Understand the types of projects a firm may wish to

undertake

– whether a particular project is acceptable, or

 Understand the decision rules for the main methods of

– which project to choose between a number of possible projects. projects project evaluation
 Understand the advantages & disadvantages of each of the main methods for project evaluation

FINS1613_s2_2010_L4

3

Capital Budgeting Process

4

Capital Budgeting Process (cont.)

3. Evaluation

1. Generate project proposals
–

FINS1613_s2_2010_L4

•

Does the project fit with the firm’s long-term goals? Quantitative Analysis
– Project worth > Project cost?
– Project j return > Project j required q return?

2. Screening:
–

•

How will the project affect the firm?
•

Type of project

•

Evaluating different options

FINS1613_s2_2010_L4

5

Qualitative Analysis

FINS1613_s2_2010_L4

6

1

Capital Budgeting Process

Capital Budgeting Process (cont.)



4. Implementation & Control
–

Amount of time spent by managers

Monitoring actual cash flows relative to forecasts

Stage

5 Post-implementation
5.
Post implementation Audit
–

How important is each stage?
–

Project follow-up and review

Time Spent(%)

gp proposals p
Generating

20.3

Screening

24.4

Evaluation

19.3

Implementation & Control

22.4

Audit

13.6

Source: Gitman and Maxwell (1985)_USA
FINS1613_s2_2010_L4

7

Screening: Type of Project

FINS1613_s2_2010_L4

8

Screening: Replacement

 Projects fall under four general categories:

 Maintenance of Existing Business

– Replacement
– Expansion

 Cost Reduction

– Safety & Environmental
– Other projects

FINS1613_s2_2010_L4

9

Screening: Expansion

FINS1613_s2_2010_L4

10

Screening: Safety & Environmental

 Existing Markets or Products

 Mandatory investments to ensure compliance with

 New Markets or Products

government legislation on safety or environmental issues.  The investment may or may not result in any positive cash h flows fl f the for th firm. fi  Projects of this type require analysis of how the firm will fund the investment and its impact on the firm.

FINS1613_s2_2010_L4

11

FINS1613_s2_2010_L4

12

2

Screening: Evaluating options

Screening: Other Projects

One project

 Infrastructure developments, buildings etc. that do not

fall under one of the previous project classifications.

Accept

Reject

 Analysis of these projects is carried out using the best

approach for the specific project under consideration.

Multiple Projects
Independent

Mutually Exclusive
Contingent

FINS1613_s2_2010_L4

13

Screening: Independent Projects

flows.
 Each project is analysed independently and the decision to accept or reject will have no impact on whether another project is accepted or rejected. rejected  The firm could accept one or more projects or it could reject them all.

15

Screening: Mutually Exclusive Projects (cont.)

 Projects in which accepting one project requires

rejecting all other options.
 Projects are analysed separately but need to be ranked

relative to each other in order to determine which to undertake. undertake
 Projects are mutually exclusive typically because of resource or financial constraints.

FINS1613_s2_2010_L4

16

Screening: Mutually Exclusive Projects (cont.)

 Example of Resource Limitation

 Example of
Show More

Related Documents: Week 4 Essay

week 4 essay 4

Sabrina Taylor Feb. 7th, 2015 Western Civilization Essay topic: Among the influential women in the twelfth century, Heloise d' Argenteuil, Eleanor of Aquitaine, and Hildegard of Bingen are significant. Select one of these women and discuss in detail the reasons why she had a significant influence upon her time. Please include the sources from which you obtained the information used in your essay. Once I decided to pick this women, I interned became to the realization that Hildegard of Bingen born…

Words 853 - Pages 4

Week 4 Quiz

University of Phoenix Week Four Quiz Directions: Based on your readings and discussions in class this week, select the best answer. Utilize the Text Highlight feature or Bold your response. 1. Which of the following is the smartest way to handle allowance for children and teens? a. Pay your children and teens according to the work that they do. b. Never pay for chores of any type, since children of all ages should be expected to help out as members of the family. c. Increase allowance annually…

Words 505 - Pages 3

Co2520 Week 4

CO2520 Homework Week 4 For each of the examples that follow, create an “I” statement that expresses your feelings about the situation: Once again your roommate has borrowed some of your clothes without asking and has returned them dirty and/or damaged. I would be very angry with my roommate. I would feel as if my roommate had no respect for me. I don’t believe that we would be roommates any longer. For the third time this semester, your instructor has changed the date of an exam. I would be relieved…

Words 542 - Pages 3

Week 4 Essay

Week 4 Essay The first thing that needs to be done is to select a date for the party. During this time we need to research the date that the person is retiring, and also determine what days the most people will be able to attend. This needs to be done within a 2 day span. The second task that needs to be completed is to find a place to host the retirement party. In doing this we first need to determine how many people are expected to attend so the proper size facility can be determined. Next…

Words 401 - Pages 2

week 4 Essay

After reading, “Jeanne Gang and the Greening of Chicago,” I have found that there is a great importance of making critical evaluations of news stories. The article that I read gave a clear understanding and was accurate, after evaluation from other resourceful websites. With sufficient depth and background, I was able to have a little bit of history on whom the story was about as well as see the path in which she is heading. Facts were reported on Jeanne from her past accomplishments to her future…

Words 319 - Pages 2

Week 4 Essay

Complete the Career Plan Building Activity: Work Culture Preferences. Write a paper of 450 words to 700 words discussing the results of your Career Plan Building Activity: Work Culture Preferences. Make sure that you use APA format. Discuss your findings from the results. What is organizational culture? What does organizational culture and communication have to do with one another? What do your results tell you about how you communicate? What steps will you take to improve the quality of your…

Words 458 - Pages 2

Week 4 Paper

Self-Reflection: Organizational Climate and Building Community James Brown LIB 125 Contemporary Issues in Organizational Leadership Daniel Mudge March 16, 2015 To develop an understanding of how leadership affects others and to help me understand my strengths and weaknesses in establishing the right climate for a group or an organization, I was asked to complete an organizational climate questionnaire. The questionnaire is designed to measure four factors related to establishing…

Words 736 - Pages 3

Pos 420 Week 4

This file of POS 420 Week 5 Summary contains: Describe a topic from the lecture, readings or other assignments about which you have gained an improved or corrected understanding from that which you had prior to starting this course. Pick a topic that you are still struggling to grasp and share what you find difficult about that topic. Computer Science - General Computer Science POS 420 Week 1 UNIX® and Linux® Comparison Matrix Resources: University of Phoenix Material: UNIX® and Linux®…

Words 575 - Pages 3

Week 4 Assignment Essay

Week 4 Learning Team Reflection Week 4 Learning Team Reflection Diversity in work teams is essential; to be able to maintain this they would need to provide many different aspects ranging from gender, race, and experiences that can be utilized in the team’s task. The individual abilities of each team member must complement each other in order to achieve maximum team effectiveness. Team members’ personalities are equally as important. There are many different steps that can be taken to make…

Words 494 - Pages 2

due week 4 Essay

Provide an overview of your personal strengths as revealed per information generated by the Work Preference Indicator (taken during the Orientation to the CMBA program), and the Strengths Finder, plus at least one other assessment tools identified in Weeks #1 and #2, such as the Big Five Assessment and the MBTI you may have taken prior to this course or the like, as well as any others you view to be relevant. Note: Your paper should include direct feedback from the Work Preference Indicator and the Strengths…

Words 1209 - Pages 5