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Boundless Lecture Slides

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  1. Boundless Lecture Slides Available on the Boundless Teaching Platform Free to share, print, make copies and changes. Get yours at www.boundless.com

  2. Using Boundless Presentations Boundless Teaching Platform Boundless empowers educators to engage their students with affordable, customizable textbooks and intuitive teaching tools. The free Boundless Teaching Platform gives educators the ability to customize textbooks in more than 20 subjects that align to hundreds of popular titles. Get started by using high quality Boundless books, or make switching to our platform easier by building from Boundless content pre-organized to match the assigned textbook. This platform gives educators the tools they need to assign readings and assessments, monitor student activity, and lead their classes with pre-made teaching resources. Get started now at: • The Appendix The appendix is for you to use to add depth and breadth to your lectures. You can simply drag and drop slides from the appendix into the main presentation to make for a richer lecture experience. http://boundless.com/teaching-platform • Free to edit, share, and copy Feel free to edit, share, and make as many copies of the Boundless presentations as you like. We encourage you to take these presentations and make them your own. If you have any questions or problems please email: educators@boundless.com Free to share, print, make copies and changes. Get yours at www.boundless.com

  3. About Boundless • Boundless is an innovative technology company making education more affordable and accessible for students everywhere. The company creates the world’s best open educational content in 20+ subjects that align to more than 1,000 popular college textbooks. Boundless integrates learning technology into all its premium books to help students study more efficiently at a fraction of the cost of traditional textbooks. The company also empowers educators to engage their students more effectively through customizable books and intuitive teaching tools as part of the Boundless Teaching Platform. More than 2 million learners access Boundless free and premium content each month across the company’s wide distribution platforms, including its website, iOS apps, Kindle books, and iBooks. To get started learning or teaching with Boundless, visit boundless.com. Free to share, print, make copies and changes. Get yours at www.boundless.com

  4. Introduction to Capital Budgeting Capital Budgeting The Payback Method Internal Rate of Return Net Present Value ] Cash Flow Analysis and Other Factors Capital Budgeting Free to share, print, make copies and changes. Get yours at www.boundless.com

  5. Capital Budgeting > Introduction to Capital Budgeting Introduction to Capital Budgeting • Defining Capital Budgeting • The Goals of Capital Budgeting • Accounting Flows and Cash Flows • Ranking Investment Proposals • Reinvestment Assumptions • Long-Term vs. Short-Term Financing Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-11/introduction-to-capital-budgeting-91/

  6. Capital Budgeting > The Payback Method The Payback Method • Defining the Payback Method • Calculating the Payback Period • Discounted Payback • Advantages of the Payback Method • Disadvantages of the Payback Method Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-11/the-payback-method-92/

  7. Capital Budgeting > Internal Rate of Return Internal Rate of Return • Defining the IRR • Calculating the IRR • Advantages of the IRR Method • Disadvantages of the IRR Method • Multiple IRRs • Modified IRR Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-11/internal-rate-of-return-93/

  8. Capital Budgeting > Net Present Value Net Present Value • Defining NPV • Calculating the NPV • Interpreting the NPV • Advantages of the NPV method • Disadvantages of the NPV method • NPV Profiles Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-11/net-present-value-94/

  9. Capital Budgeting > Cash Flow Analysis and Other Factors Cash Flow Analysis and Other Factors • Cash Flow Factors • Replacement Projects • Sunk Costs • Opportunity Costs • Externalities • Tax Rate • Depreciation • Elective Expensing Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-11/cash-flow-analysis-and-other-factors-95/

  10. Appendix Free to share, print, make copies and changes. Get yours at www.boundless.com

  11. Capital Budgeting Key terms • accounts receivableAccounts receivable also known as Debtors, is money owed to a business by its clients (customers) and shown on its balance sheet as an asset. • allocateTo distribute according to a plan. • APTIn finance, arbitrage pricing theory (APT) is a general theory of asset pricing that holds, which holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors or theoretical market indices, where sensitivity to changes in each factor is represented by a factor-specific beta coefficient. • benefitAn advantage, help, or aid from something. • Call optionA call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option. [1] The buyer of the call option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price) • capital budgetingThe budgeting process in which a company plans its capital expenditure (the spending on assets of long-term value). • capital budgetingThe budgeting process in which a company plans its capital expenditure (the spending on assets of long-term value). • cash flowThe sum of cash revenues and expenditures over a period of time. • cash flowThe sum of cash revenues and expenditures over a period of time. • cash inflowCash that is received by the investor. For example, dividends paid on a stock owned by the investor is a cash inflow. • cash outflowAny cash that is spent or invested by the investor. • Common stockCommon stock is a form of corporate equity ownership, a type of security. Free to share, print, make copies and changes. Get yours at www.boundless.com

  12. Capital Budgeting • cost of capitalthe rate of return that capital could be expected to earn in an alternative investment of equivalent risk • cost of capitalthe rate of return that capital could be expected to earn in an alternative investment of equivalent risk • cost of capitalthe rate of return that capital could be expected to earn in an alternative investment of equivalent risk • cost of capitalthe rate of return that capital could be expected to earn in an alternative investment of equivalent risk • cost of capitalthe rate of return that capital could be expected to earn in an alternative investment of equivalent risk • cost of capitalthe rate of return that capital could be expected to earn in an alternative investment of equivalent risk • cumulativehaving priority rights to receive a dividend that accrue until paid • deductionA sum that can be removed from tax calculations; something that is written off. • discount rateThe interest rate used to discount future cash flows of a financial instrument; the annual interest rate used to decrease the amounts of future cash flow to yield their present value. • discount rateThe interest rate used to discount future cash flows of a financial instrument; the annual interest rate used to decrease the amounts of future cash flow to yield their present value. • discounted cash flowIn finance, discounted cash flow (DCF) analysis is a method of valuing a project, company, or asset using the concepts of the time value of money. • discounted payback periodThe discounted payback period is the amount of time that it takes to cover the cost of a project, by adding positive discounted cash flow coming from the profits of the project. Free to share, print, make copies and changes. Get yours at www.boundless.com

  13. Capital Budgeting • durationA measure of the sensitivity of the price of a financial asset to changes in interest rates, computed for a simple bond as a weighted average of the maturities of the interest and principal payments associated with it • effective interest rateThe effective interest rate, effective annual interest rate, annual equivalent rate (AER), or simply effective rate is the interest rate on a loan or financial product restated from the nominal interest rate as an interest rate with annual compound interest payable in arrears. • explicit costsa direct payment made to others in the course of running a business, such as wage, rent and materials • gain (or loss)If an investment earns more value than it costs, the difference is the gain. If it costs more than it earns, the difference is a loss. • implicit costsThe opportunity cost equal to what a firm must give up in order to use factors which it neither purchases nor hires. • internal rate of returnIRR. The rate of return on an investment which causes the net present value of all future cash flows to be zero. • internal rate of return (IRR)A calculation that makes the net present value of all cash flows (positive and negative) from a particular investment equal to zero. It can also be described as the rate which will make an investment break even. • liquidityAvailability of cash over short term: ability to service short-term debt. • marginCollateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty. • Modified Internal Rate of ReturnThe modified internal rate of return (MIRR) is a financial measure of an investment's attractiveness. It is used in capital budgeting to rank alternative investments of equal size. As the name implies, MIRR is a modification of the internal rate of return (IRR) and, as such, aims to resolve some problems with the IRR. • Modified Internal Rate of ReturnThe modified internal rate of return (MIRR) is a financial measure of an investment's attractiveness. It is used in capital budgeting to rank alternative investments of equal size. As the name implies, MIRR is a modification of the internal rate of return (IRR) and, as such, aims to resolve some problems with the IRR. • mutually exclusiveDescribing multiple events or states of being such that the occurrence of any one implies the non-occurrence of all the others. Free to share, print, make copies and changes. Get yours at www.boundless.com

  14. Capital Budgeting • mutually exclusiveDescribing multiple events or states of being such that the occurrence of any one implies the non-occurrence of all the others. • net present value (NPV)This calculation takes all future cash flows from a given operational initiative, and discounts them to their present value based on the weighted average cost of capital. • net present value profilea graph of the sum of all cash inflows and outflows adjusted for the time value of money at different discount rates • Opportunity costThe cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative. • Opportunity costThe cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative. • Opportunity costThe cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative. • Opportunity costThe cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative. • Opportunity costThe cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative. • parameterA variable kept constant during an experiment, calculation, or similar. • payback methodA simple calculation that allows an assessment of the cost of a project via the time it will take to be repaid. • payback periodthe amount of time required for the return on an investment to return the sum of the original investment • Preferred StockPreferred stock (also called preferred shares, preference shares or simply preferreds) is an equity security with properties of both an equity and a debt instrument, and is generally considered a hybrid instrument. Free to share, print, make copies and changes. Get yours at www.boundless.com

  15. Capital Budgeting • reinvestment rateThe annual yield at which cash flows from an investment can be reinvested. • retrospectiveAffecting or influencing past things; retroactive. • returnGain or loss from an investment. • sunk costA cost that has already been incurred and which cannot be recovered to any significant degree. • SwapIn finance, a swap is a derivative in which counterparties exchange cash flows of one party's financial instrument for those of the other party's financial instrument. • time value of moneyThe value of money, figuring in a given amount of interest, earned over a given amount of time. • time value of moneyThe value of money, figuring in a given amount of interest, earned over a given amount of time. • time value of moneyThe time value of money is the value of money, figuring in a given amount of interest earned over a given amount of time. • variablesomething whose value may be dictated or discovered. • Weighted average cost of capitalThe weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Free to share, print, make copies and changes. Get yours at www.boundless.com

  16. Capital Budgeting NPV Profile The NPV Profile graphs how NPV changes as the discount rate used changes. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Internal rate of return."Public domainhttp://en.wikipedia.org/wiki/Internal_rate_of_returnView on Boundless.com

  17. Capital Budgeting Zhuhai sea front development Payback is the amount of time it takes to return an initial investment; however, it does not account for the time value of money, risk, financing, or other important considerations, such as the opportunity cost. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia."Zhuhai sea front."CC BY-SAhttp://commons.wikimedia.org/wiki/File:Zhuhai_sea_front.JPGView on Boundless.com

  18. Capital Budgeting Machinery Being able to accurately find the NPV of a piece of machinery means having a good idea when all costs are going to occur (when it will need fixing) and when it will generate revenue (when it will be used on a job). Free to share, print, make copies and changes. Get yours at www.boundless.com Fotopedia."Liebherr R 317 by Alexandre Prévot in Heavy equipment, Hydraulic machinery, Liebherr Group on Fotopedia - Images for Humanity."CC BY-SAhttp://www.fotopedia.com/items/flickr-6836303340View on Boundless.com

  19. Capital Budgeting Private Equity Private equity firms, such as NBGI, provide funds for companies unable or uninterested in obtaining funds publicly. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia."NBGI Private Equity logo."Public domainhttp://commons.wikimedia.org/wiki/File:NBGI_Private_Equity_logo.pngView on Boundless.com

  20. Capital Budgeting Calculating IRR IRR is the rate at which NPV = 0. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Internal rate of return."GNU FDLhttp://en.wikipedia.org/wiki/Internal_rate_of_returnView on Boundless.com

  21. Capital Budgeting Financing To manage business often requires long-term and short-term financing. Free to share, print, make copies and changes. Get yours at www.boundless.com Fotopedia."Financing - Search for Photos."CC BYhttp://www.fotopedia.com/search?q=Financing&human_license=reuse_commercial_modifyView on Boundless.com

  22. Capital Budgeting Calculating IRR NPV formula with r as IRR Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Internal rate of return."GNU FDLhttp://en.wikipedia.org/wiki/Internal_rate_of_returnView on Boundless.com

  23. Capital Budgeting Calculating IRR Cash flows and time Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Internal rate of return."GNU FDLhttp://en.wikipedia.org/wiki/Internal_rate_of_returnView on Boundless.com

  24. Capital Budgeting IRR Showing the position of the IRR on the graph of NPV(r) (r is labelled 'i' in the graph). Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Internal rate of return."GNU FDLhttp://en.wikipedia.org/wiki/Internal_rate_of_returnView on Boundless.com

  25. Capital Budgeting Cash Cash flows reflect cash entering or leaving the organization. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | Cash | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/blatantworld/4149529614/sizes/m/in/photostream/View on Boundless.com

  26. Capital Budgeting Sunk Sunk costs are irrecoverable. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | Sunk Boat | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/janeladeimagens/262555625/sizes/m/in/photostream/View on Boundless.com

  27. Capital Budgeting Pollution Pollution is an example of a negative externality. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | Smoke stacks (LOC) | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/library_of_congress/2179929940/sizes/m/in/photostream/View on Boundless.com

  28. Capital Budgeting Replacing a window sill vs. keeping the old one Replacement project analysis tells a company whether the costs of a replacement project provide a suitable return on investment. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | Replacement Window Installation | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/andersenwindows/5738170170/sizes/m/in/photostream/View on Boundless.com

  29. Capital Budgeting Truck Expensing is applied to property used in a business, such as trucks. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | Truck load of ponderosa pine, Edward Hines Lumber Co.operations in Malheur National Forest, Grant County, Oregon (LOC) | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/library_of_congress/2178329189/sizes/m/in/photostream/View on Boundless.com

  30. Capital Budgeting Reinvestment Reinvestment to expand business Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | 100416-A8647R-001 | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/armyengineersnorfolk/4535262178/sizes/o/in/photostream/View on Boundless.com

  31. Capital Budgeting Investment Proposal Choosing the best investment proposal for business Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr.CC BYhttp://www.flickr.com/photos/fatguyinalittlecoat/3038563145/sizes/o/in/photostream/View on Boundless.com

  32. Capital Budgeting Goals of capital budgeting The main goal of capital budgeting is to rank projects. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia."Budget ESA 2010."Public domainhttp://commons.wikimedia.org/wiki/File:Budget_ESA_2010.pngView on Boundless.com

  33. Capital Budgeting Capital Investment in Plant and Property The payback method is a simple way to evaluate the number of years or months it takes to return the initial investment. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia."Bruce A Turbine Hall December 2002."CC BYhttp://commons.wikimedia.org/wiki/File:Bruce_A_Turbine_Hall_December_2002.JPGView on Boundless.com

  34. Capital Budgeting Tax Rate The tax rate is a percentage of the taxable base. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | Tax | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/68751915@N05/6629120915/sizes/m/in/photostream/View on Boundless.com

  35. Capital Budgeting Depreciated value Depreciation measures how much of an asset is used up in a certain amount of time. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | In-n-Out-burger---eating | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/lifeontheedge/458706241/sizes/m/in/photostream/View on Boundless.com

  36. Capital Budgeting Medicine Drug developers must try to calculate the future revenues of a drug in order to find the NPV to determine if it is worth the cost of development. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."Pills.| Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/59334544@N00/2322167178/View on Boundless.com

  37. Capital Budgeting Discount rate Discount rate set by Central Bank of Russia in 1992-2009. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia."CBR Discount Rate 1992-2009."CC BY-SAhttp://commons.wikimedia.org/wiki/File:CBR_Discount_Rate_1992-2009.pngView on Boundless.com

  38. Capital Budgeting Alternative choices Choosing one alternative means another is foregone. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | Scales Of Justice | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/vaxzine/485424742/sizes/o/in/photostream/View on Boundless.com

  39. Capital Budgeting Calculation of the MIRR MIRR is calculated as follows: Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Modified internal rate of return."GNU FDLhttp://en.wikipedia.org/wiki/Modified_internal_rate_of_returnView on Boundless.com

  40. Capital Budgeting Reinvestment Factor Describe how the reinvestment factors related to total return. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Rate of return."GNU FDLhttp://en.wikipedia.org/wiki/Rate_of_returnView on Boundless.com

  41. Capital Budgeting NPV formula Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore, NPV is the sum of all terms. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Net present value."GNU FDLhttp://en.wikipedia.org/wiki/Net_present_valueView on Boundless.com

  42. Capital Budgeting Capital Investment in Plant and Property The payback method is a simple way to evaluate the number of years or months it takes to return the initial investment. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia."Bruce A Turbine Hall December 2002."CC BYhttp://commons.wikimedia.org/wiki/File:Bruce_A_Turbine_Hall_December_2002.JPGView on Boundless.com

  43. Capital Budgeting Accounting Flows This chart is a useful way to see the trajectory of accounting flows as they apply to different types of line items. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Accounting Flows.JPG."CC BY-SA 3.0https://en.wikibooks.org/wiki/Accountancy/Introduction_to_Accountancy#Overview_of_the_accounting_cycleView on Boundless.com

  44. Capital Budgeting MIRR The formula for calculating MIRR. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Modified internal rate of return."GNU FDLhttp://en.wikipedia.org/wiki/Modified_internal_rate_of_returnView on Boundless.com

  45. Capital Budgeting Disadvantage of IRR NPV vs discount rate comparison for two mutually exclusive projects. Project A has a higher NPV (for certain discount rates), even though its IRR (= x-axis intercept) is lower than for project B Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Internal rate of return."GNU FDLhttp://en.wikipedia.org/wiki/Internal_rate_of_returnView on Boundless.com

  46. Capital Budgeting Airplane Before purchasing a new airplane, airlines evaluate the NPV of the plan by calculating the PV of the revenue it can earn from it and the PV of its cost (e.g., purchase cost, maintenance, fuel, etc. ). Free to share, print, make copies and changes. Get yours at www.boundless.com Viewology."Pictures: AirAsia 9M-AFY Airbus A320-216 Airplane Arriving/Departing at Penang Airport – Viewology.Net."CC BY-SAhttp://viewology.net/pictures-airasia-9m-afy-airbus-a320-216-airplane-arrivingdeparting-at-penang-airport/768/View on Boundless.com

  47. Capital Budgeting NPV Decision Table NPV simply and clearly shows whether a project adds value to the firm or not. It's easy of use in decision making is one of its advantages. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Net present value."GNU FDLhttp://en.wikipedia.org/wiki/Net_present_valueView on Boundless.com

  48. Capital Budgeting Net Present Value (NPV) Formula NPV is the sum of of the present values of all cash flows associated with a project. The business will receive regular payments, represented by variable R, for a period of time. This period of time is expressed in variable t. The payments are discounted using a selected interest rate, signified by the i variable. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Net present value."GNU FDLhttp://en.wikipedia.org/wiki/Net_present_valueView on Boundless.com

  49. Capital Budgeting Internal rate of return Internal rate of return is the rate at which the NPV of an investment equals 0. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia."Klk-IR1a."CC BY-SAhttp://commons.wikimedia.org/wiki/File:Klk-IR1a.pngView on Boundless.com

  50. Capital Budgeting Multiple internal rates of return As cash flows of a project change sign more than once, there will be multiple IRRs. NPV is a preferable metric in these cases. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia."Klk-IR3l."CC BY-SAhttp://commons.wikimedia.org/wiki/File:Klk-IR3l.pngView on Boundless.com

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