9-204-109 REV: OCTOBER 23‚ 2006 MIHIR DESAI Globalizing the Cost of Capital and Capital Budgeting at AES In June 2003‚ Rob Venerus‚ director of the newly created Corporate Analysis & Planning group at The AES Corporation‚ thumbed through the five-inch stack of financial results from subsidiaries and considered the breadth and scale of AES. In the 12 years since it had gone public‚ AES had become a leading independent supplier of electricity in the world with more than $33 billion in assets
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Capital budgeting is the process of evaluating and selecting long-term investments that are in line with the goal of investors’ wealth maximization. When a business makes a capital investment (assets such as equipment‚ building‚ land etc.) it incurs a cash outlay in the expectation of future benefits. The expected benefits generally extend beyond one year in the future. Out of different investment proposals available to a business‚ it has to choose a proposal that provides the best return and the
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OF CAPITAL AND CAPITAL BUDGETING AT AES 1. How would you evaluate the capital budgeting method used historically by AES? 2. If you implemented the methodology suggested by Venerus‚ what would be the range of discount rates one would use around the world? 3. Does this make sense as a way to do capital budgeting? 4. How big a value difference does this new approach make to the Pakistan project? 5. How do these cost of capital modifications translate into changed probabilities in terms of
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Notes: FIN 303 Spring 09‚ Part 8 – Topics in Capital Budgeting Professor James P. Dow‚ Jr. Part 8. Topics in Capital Budgeting In part 7 we learned the basics of capital budgeting. However‚ we ignored some of the complications that can arise when evaluating projects. In this section we look at a few of those issues. How Uncertainty Affects the Capital Budgeting Decision Every project has uncertainty and so we need to determine how risk affects how we make decisions. Large corporations often use
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Assignment | Cost of Capital‚ Capital Budgeting and Financial Planning | Chapter(s) | 9‚ 10‚ 12 | Group Name | | Student Name(s) | | Date | | Instructions: HW Assignments will be uploaded to Kean Blackboard and must be accessed from there. You must work in groups where assigned (or independently if not assigned to groups) on homework assignments. Points are noted against each question. You are required to submit Home Work assignments electronically on Kean Blackboard using MS-Office
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A SUMMARY OF CAPITAL BUDGETING TECHNIQUES E A G C EDIRISINGHE - FGS/02/25/01/2012/044 COURSE MBA 61043- CORPORATE FINANCE SECOND YEAR SEMESTER ONE – 2013 Master of Business Administration Faculty of Commerce and Management Studies University of Kelaniya Course Instructors : Dr.P.M.C. Thilkarathne Dr.D.K.Y. Abeyawardena Corporate Finance - MBA 61043 CAPITAL BUDGETING TECHNIQUES Faced with limited sources of capital‚ management should carefully decide whether a particular project
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Capital Budgeting: Decision Criteria Brigham and Daves Ch. 12 Christopher B. Alt CFA PhD What Is Capital Budgeting? Analysis of potential additions to fixed assets Long-term decisions typically involving large $ expenditures Making the ‘right’ capital budgeting decisions is enormously important to a firm’s future Should we build this plant? All rights reserved - Christopher B. Alt 2 Key Steps in Capital Budgeting Estimate CFs (inflows & outflows) Assess riskiness of CFs Determine
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What are the primary strengths and weakness of the current system? How should the performance of such a system be evaluated? The capital budgeting system at Stryker Corporation made use of formalized CER forms by which individual divisions within Stryker documented the goals for revenue‚ operating profit and cash flow across in a way that were deliverable and consistent with global corporate targets. The CER system is a rigorous one requiring thorough documentation before the divisions obtain
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the following is NOT a capital component when calculating the weighted average cost of capital (WACC)? Choose one answer. | a. Long-term debt. | | | b. Accounts payable. | | | c. Retained earnings. | | | d. Common stock. | | | e. Preferred stock. | | Correct Marks for this submission: 1/1. Question 2 Marks: 1 For a typical firm‚ which of the following sequences is CORRECT? All rates are after taxes‚ and assume the firm operates at its target capital structure. Choose one answer
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INTRODUCTION TO CAPITAL BUDGETING Overview 159 7.1 The NPV Rule for Judging Investments and Projects 159 7.2 The IRR Rule for Judging Investments 161 7.3 NPV or IRR‚ Which to Use? 162 7.4 The “Yes–No” Criterion: When Do IRR and NPV Give the Same Answer? 163 7.5 Do NPV and IRR Produce the Same Project Rankings? 164 7.6 Capital Budgeting Principle: Ignore Sunk Costs and Consider Only Marginal Cash Flows 168 7.7 Capital Budgeting Principle: Don’t Forget the Effects of Taxes—Sally and Dave’s
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