Fundamentals of Capital Budgeting
27 Pages Posted: 30 May 2017
Abstract
This note provides an introduction to evaluation of corporate investment projects. Decision criteria such as net present value, internal rate of return, and paybacks are discussed. Specific examples are provided.
Excerpt
UVA-F-0917
Rev. Oct. 19, 2010
FUNDAMENTALS OF CAPITAL BUDGETING
In this note, we discuss the analysis of long-term investment opportunities using the basic techniques of capital budgeting. After discussing alternative decision criteria, we develop in detail the discounted cash flow approach. Finally, we mention some practical problems in applying capital budgeting techniques.
What Is Capital Budgeting?
Suppose a company has three investment opportunities under consideration: (1) building a new plant in Europe; (2) replacing its computer with a new generation of more advanced equipment; or (3) buying out one of its suppliers to ensure a source of raw materials.
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Keywords: valuation
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