tailieunhanh - Ebook Practical financial management (5th edition): Part 2

(BQ) Part 2 book "Practical financial management" has contents: Capital budgeting, cash flow estimation, risk topics and real options in capital budgeting, capital structure and leverage, dividends, the management of working capital, corporate restructuring, international finance. | This page intentionally left blank T R A P 3 Chapter 10 Capital Budgeting Chapter 11 Cash Flow Estimation Chapter 12 Risk Topics and Real Options in Capital Budgeting Chapter 13 Cost of Capital B USINESS I NVESTMENT D ECISIONS — C APITAL B UDGETING This page intentionally left blank CHAPTER C APITAL B UDGETING C H A P T E R 10 O U T L I N E Characteristics of Business Projects Project Types and Risk Stand-Alone and Mutually Exclusive Projects Project Cash Flows The Cost of Capital Capital Budgeting Techniques Payback Period Net Present Value (NPV) Internal Rate of Return (IRR) Comparing IRR and NPV NPV and IRR Solutions Using Financial Calculators and Spreadsheets Projects with a Single Outflow and Regular Inflows Profitability Index (PI) Comparing Projects with Unequal Lives Capital Rationing The money companies spend in the normal course of business can be divided into two categories. Funds are expended on an everyday basis to buy inventory, pay expenses, and compensate employees. These expenditures can be thought of as short term in that they support daily activity. In addition to such short-term expenditures, firms spend large sums on special projects from time to time. For example, machines normally wear out and need to be replaced every few years. The replacement expenditures tend to be relatively large, but they are infrequent. New business ventures provide a second example because they generally require initial spending to get started. Start-up amounts are usually large, but the opportunities don’t come along often. Spending on things like these is long term because the projects involved tend to last for long periods. As a general rule, money spent on longterm projects is called capital. The field known as capital budgeting involves planning and justifying how capital dollars are spent on longterm projects. It provides methods through which projects are evaluated to decide whether they make sense for a particular business at a point .