Capital Budgeting Steps 1)Evaluate Cash Flows Initial outlay 0123456
Capital Budgeting Steps 1) Evaluate Cash Flows 0 1 2 3 4 5 6 . . . n Initial outlay
Capital Budgeting Steps 1)Evaluate Cash Flows Initial outlay 0123456 Annual cash flows
Capital Budgeting Steps 1) Evaluate Cash Flows 0 1 2 3 4 5 6 . . . n Annual Cash Flows Initial outlay
Capital Budgeting Steps 1)Evaluate Cash Flows Initial Terminal outlay Cash flow 0123456 Annual cash flows
Capital Budgeting Steps 1) Evaluate Cash Flows 0 1 2 3 4 5 6 . . . n Terminal Cash flow Annual Cash Flows Initial outlay
Capital Budgeting Steps 2) Evaluate the risk of the project Well get to this in the next chapter. For now. we'l assume that the risk of the project is the same as the risk of the overall firm If we do this. we can use the firm's cost of capital as the discount rate for capital investment proiects
2) Evaluate the risk of the project. • We’ll get to this in the next chapter. • For now, we’ll assume that the risk of the project is the same as the risk of the overall firm. • If we do this, we can use the firm’s cost of capital as the discount rate for capital investment projects. Capital Budgeting Steps
Capital Budgeting Steps 3)Accept or Reject the Project
3) Accept or Reject the Project. Capital Budgeting Steps