PPT On CAPITAL BUDGETING

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CAPITAL BUDGETING Presentation Transcript:
1.CAPITAL BUDGETING

2.Capital Investment Decisions
 Outcome is uncertain.
 Investment involves a long-term commitment.
Capital budgeting: Analyzing alternative long- term investments and deciding which assets to acquire or sell.
 Decision may be difficult or impossible to reverse.
 Large amounts of money are usually involved.

3.Capital Investment Decisions

4.Capital Investment Decisions: Typical Cash Outflows

5.Capital Investment Decisions: Typical Cash Inflows

6.Capital Investment Decisions: Nonfinancial Considerations

7.Evaluating Capital Investment Proposals:  An Illustration

8.Evaluating Capital Investment Proposals:  An Illustration
Stars’ Stadium is considering purchasing vending machines with a 5-year life.

9.Evaluating Capital Investment Proposals:  An Illustration
Most capital budgeting techniques use annual net cash flow.
 Depreciation is not a cash outflow.

10.Payback Period
The payback period of an investment is the time expected to recover the initial investment amount.

11.The payback period of an investment is the time expected to recover the initial investment amount.

12.Payback Period

13. Consider two projects, each with a five-year life and each costing $6,000.

14.Return on Average Investment (ROI)
  ROI focuses on annual income instead of cash flows.

15.  ROI focuses on annual income instead of cash flows.