Chapter 10 Capital Budgeting Techniques
Part
5
Long-Term Investment
Decisions
Chapters in This Part
10
11
12
Capital Budgeting Techniques
Capital Budgeting Cash Flows
Risk and Refinements in Capital Budgeting
INTEGRATIVE CASE 5 Lasting Impressions Company
robably nothing that financial managers do is more important to the long-term success of a company than making good investment decisions. The term capital budgeting describes the process for evaluating and selecting investment projects.
Often, capital expenditures can be very large, such as building a new plant or launching a new product line. These endeavors can create enormous value for shareholders, but they can also bankrupt the company. In this section, you’ll learn how financial managers decide which investment opportunities to pursue.
P
Chapter 10 covers the capital budgeting tools that financial managers and analysts use to evaluate the merits of an investment. Some of these techniques are quite intuitive and simple to use, such as payback analysis. Other techniques are a little more complex, such as the NPV and IRR approaches. In general, the more complex techniques provide more comprehensive evaluations, however, the simpler approaches often lead to the same value-maximizing decisions.
Chapter 11 illustrates how to develop the capital budgeting cash flows that the techniques covered in Chapter 10 require. After studying this chapter, you will understand the inputs that are necessary to build the relevant cash flows that are required to determine whether a particular investment is likely to create or destroy value for shareholders.
Chapter 12 introduces additional techniques for evaluating the risks inherent with capital investment projects. Because of the often huge scale of capital investments and their importance to the firm’s financial well-being, managers invest a tremendous amount of time and energy trying to understand the risks associated with these projects. 387
10
Capital Budgeting
Techniques
Learning Goals
Why This
5
Long-Term Investment
Decisions
Chapters in This Part
10
11
12
Capital Budgeting Techniques
Capital Budgeting Cash Flows
Risk and Refinements in Capital Budgeting
INTEGRATIVE CASE 5 Lasting Impressions Company
robably nothing that financial managers do is more important to the long-term success of a company than making good investment decisions. The term capital budgeting describes the process for evaluating and selecting investment projects.
Often, capital expenditures can be very large, such as building a new plant or launching a new product line. These endeavors can create enormous value for shareholders, but they can also bankrupt the company. In this section, you’ll learn how financial managers decide which investment opportunities to pursue.
P
Chapter 10 covers the capital budgeting tools that financial managers and analysts use to evaluate the merits of an investment. Some of these techniques are quite intuitive and simple to use, such as payback analysis. Other techniques are a little more complex, such as the NPV and IRR approaches. In general, the more complex techniques provide more comprehensive evaluations, however, the simpler approaches often lead to the same value-maximizing decisions.
Chapter 11 illustrates how to develop the capital budgeting cash flows that the techniques covered in Chapter 10 require. After studying this chapter, you will understand the inputs that are necessary to build the relevant cash flows that are required to determine whether a particular investment is likely to create or destroy value for shareholders.
Chapter 12 introduces additional techniques for evaluating the risks inherent with capital investment projects. Because of the often huge scale of capital investments and their importance to the firm’s financial well-being, managers invest a tremendous amount of time and energy trying to understand the risks associated with these projects. 387
10
Capital Budgeting
Techniques
Learning Goals
Why This