财务管理英文Chapter12.pptVIP

Chapter 12 Capital Budgeting and Estimating Cash Flows Chapter Objectives The Capital Budgeting Process Generating Investment Project Proposals Estimating Project “After-Tax Incremental Operating Cash Flows” What is Capital Budgeting? The process of identifying, analyzing, and selecting investment projects whose returns (cash flows) are expected to extend beyond one year. The Capital Budgeting Process Generate investment proposals consistent with the firm’s strategic objectives. Estimate after-tax incremental operating cash flows for the investment projects. Evaluate project incremental cash flows. Select projects based on a value-maximizing acceptance criterion. Reevaluate implemented investment projects continually and perform postaudits for completed projects. Classification of Investment Project Proposals 1. New products or expansion of existing products 2. Replacement of existing equipment or buildings 3. Research and development 4. Exploration 5. Other (e.g., safety or pollution related) Financial Cash Flow In finance, the most important item that can be extracted from financial statements is the actual cash flow of the firm. Since there is no magic in finance, it must be the case that the cash from received from the firm’s assets must equal the cash flows to the firm’s creditors and stockholders. CF(A)≡ CF(B) + CF(S) Cash Flow From Assets The total cash flow to debtholders and cash flow to shareholders. Consists of: operating cash flow - the cash flow that results from day-to-day activities of producing and selling; capital spending - the net spending on non-current assets; and additions to net working capital - the amount spent on net working capital. Estimating Cash Flows Computing cash flows Operating Cash Flow (OCF) = Net income + depreciation Cash Flow From Assets (CFFA) = OCF – net capital spending (NCS) – changes in net working capital (NWC) Pro Forma Income Statement Original Investment (Year 0) Original capital investment for this p