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Capital Budgeting: For 9.220, Term 1, 2002/03 02 - Lecture8
Capital Budgeting: For 9.220, Term 1, 2002/03 02 - Lecture8
Outline
Introduction
Discounted Cash Flow (DCF)
Techniques
Investment
Decision
Financing
Decision
Reinvestment
Real Assets
Refinancing
Financial
Manager
Financial
Markets
Introduction
Example Project
Initial investment
required: $100,000
Opportunity cost of
capital: 15%
The NPV is
Year
Cash
Revenues
less Expenses
after tax
$20,000
2-9
$40,000
10
$10,000
Strengths
Example Project
Initial investment
required: $100,000
Opportunity cost of
capital: 15%
The IRR is
Year
Cash
Revenues
less Expenses
after tax
$20,000
2-9
$40,000
10
$10,000
NPV
$150,000
$100,000
$50,000
$0
10%
20%
30%
40%
50%
-$50,000
-$100,000
Discount Rate
60%
70%
80%
90%
100%
Strengths
Weaknesses
Method:
Example Project
Initial investment
required: $100,000
Opportunity cost of
capital: 15%
The PI is
Year
Cash
Revenues
less Expenses
after tax
$20,000
2-9
$40,000
10
$10,000
Strengths
Weaknesses