Lecture 3 capital budgeting(continued)英文.pdfVIP

NPV and Capital Budgeting (con’t) Bo Sun Measuring Returns Right: The Basic Principles  Use cash flows rather than earnings. You cannot spend earnings. Use “incremental” cash flows relating to the investment decision, i.e., cashflows that occur as a consequence of the decision, rather than total cash flows. Use “time weighted” returns, i.e., value cash flows that occur earlier more than cash flows that occur later. The Return Mantra: “Time-weighted, Incremental Cash Flow Return”